July 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.

This month’s Hot Topic discusses changes in the rules governing mortgage transactions.

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.

Financial Regulation and Reform Update

New Newsletter Name Signals Emphasis on Regulatory Reform

The Subprime, Mortgage and Securitization Law Update is now the Financial Regulation and Reform Update. The new name signals improvements to the content and scope of coverage. The newsletter will provide increased focus on regulatory reform and the financial crisis as they have evolved from subprime lending issues. Capital raising, liquidity and bailout issues, foreclosures, mortgage fraud and abuses, and securitization issues are all included within the product scope. The monthly issue includes a featured story, while Current Developments provide frequent updates to reflect the latest developments.

Obama Administration Offers Regulatory Reform Proposal

A white paper issued by the Obama administration on June 17, 2009, outlines the President's plan to restructure the regulation of the U.S. financial services system. The proposal, described by President Obama as "a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression," sets out five "key objectives": promoting robust supervision and regulation of financial firms; establishing comprehensive supervision and regulation of financial markets; protecting consumers and investors from financial abuse; improving the ability to manage financial crises; and enhancing international regulatory standards and cooperation. A detailed analysis of the proposal appears in the June monthly issue (ip access user).

Obama Administration Launches Campaign for Making Home Affordable Program

The Obama Administration has begun a campaign in support of its Making Home Affordable Program. The campaign, which was launched on June 26 in Miami and will target nine additional housing markets that have been hit hard by foreclosure, is intended to empower local partners to connect homeowners with the housing program. The campaign will engage local housing counseling agencies, community organizations, elected officials and other trusted advisors in the target markets to build public awareness of Making Home Affordable, educate at-risk borrowers about options available, prepare borrowers to work more efficiently with their servicers and encourage them to take action, the Administration said. This story appears in the June 30, 2009, update (ip access user).

Frank Sees Mark-Up of Financial Consumer Protection Agency Bill in July

House Financial Services Committee Chairman Barney Frank, D-Mass., said he expects to move to a mark-up of legislation that would create a new financial consumer protection agency in July. At a June 24 hearing Frank said legislation to overhaul financial regulation will ultimately be a single bill, but that parts of the legislation will move separately before then. Frank said his committee will be spending a "good deal of time" between now and the rest of the congressional session dealing with the question of financial regulation. Frank praised the consumer protection proposal set forth by the Obama administration, noting that "the fear that it will be an out of control entity ravaging the financial sector is unsupported by anything in American history." This story appears in the June 26, 2009, update (ip access user).

Bank of America Says Government Pressure Kept Merrill Lynch Deal on Track

Bank of America CEO Kenneth Lewis said the bank was "strongly considering" walking away from the proposed purchase of Merrill Lynch once losses at the firm began to accelerate, but government pressure kept the deal on track. At a June 11 hearing of the House Oversight and Government Reform Committee, Lewis said the government threatened to remove Bank of America management and its board. Lewis said the threat "was not what gave me concern. What gave me concern was that they would make that threat to a bank in good standing." This story appears in the June 15, 2009, update (ip access user).

Federal Banking Law Reporter

Supreme Court Rejects OCC Claim of Exclusive Enforcement Powers

The U.S. Supreme Court has determined that the National Bank Act grant of exclusive visitorial powers over national banks to the Office of the Comptroller of the Currency does not prevent state authorities from judicial enforcement of state laws. Visitorial power referred to inspecting a bank's records and its operations to ensure that the bank was acting within the law and applicable regulations. Law enforcement activities are not included under that power but, rather, are a separate manner in which the government may act, the court said. The majority opinion, written by Justice Scalia and joined in by four other Justices, noted also that the Act excluded powers vested in the courts of justice from the OCC's exclusivity and deduced that the Act meant to permit the continued use of the courts to enforce the law. Cuomo v. Clearing House Association, L.L.C. (SCt) is reported at ¶101-126 (ip access user).

Treasury Sends Consumer Financial Protection Agency Plan to Congress

The Treasury Department has sent Congress its draft proposal to create a Consumer Financial Protection Agency (CFPA) and expects lawmakers to move quickly to enact legislation. The bill, in preliminary material and eight subtitles, would create the CFPA, establish its powers and responsibilities and provide for the transfer of personnel from existing regulatory agencies. An entire subtitle is devoted to protecting the ability of the states to enact and enforce consumer protection laws. The new agency would become the primary regulator for federal financial consumer protection laws. This story is in the Advance Release Documents for July 1, 2009 (ip access user).

Regulatory Reform Proposal Documents Published

The following documents related to the Obama administration reform proposal are available:

Fed Rules on Savings Transfers, Excess Balance Accounts

The Federal Reserve Board has finalized amendments to Reg. D—Reserve Requirements of Depository Institutions (12 CFR 204) to liberalize the types of transfers consumers can make from savings deposits and to make it easier for community banks that use correspondent banks to receive interest on excess balances held at Federal Reserve Banks. The amendments would ensure that correspondents that are not eligible to receive interest on their own balances at FRBanks pass back to their respondents any interest earned on required reserve balances held on behalf of those respondents. The notices begin at ¶95-956  (ip access user).

Open Market Committee Holds Fed Funds Rate Steady

The Federal Open Market Committee decided at its meeting ending June 24, 2009, not to change the federal funds rate target, leaving it at a range of 0 to .25 percent. The FOMC said its information indicates that the economic contraction is slowing. However, the Committee added that household spending remains weak due to unemployment issues and tight credit, while businesses continue to reduce both personnel and investment. The economy is expected to remain weak for the foreseeable future, but a combination of stimulus measures, actions to stabilize the financial system and market forces are expected to "contribute to a gradual resumption of sustainable economic growth in a context of price stability." This story appears in Issue No. 2324, June 26, 2009 (ip access user).

TARP Standards for Pay, Corporate Governance Proposed

The Treasury Department has published an interim final rule outlining standards for compensation and corporate governance for institutions under the Troubled Asset Relief Program (TARP). The interim rule limits bonuses paid to senior executive officers—defined to include the "named executive officers" identified in the company's annual compensation disclosures—or paid to a specified number of the most highly compensated employees of each TARP recipient to one-third of total compensation. The number of most highly compensated employees covered by the limit depends on the amount of financial assistance the company has received. For those institutions receiving more than $500 million in assistance, the five senior executive officers and the 20 most highly compensated employees are covered. The notice is at ¶95-996 (ip access user).

Compensation Principles Outlined; "Say on Pay" Supported

Noting that executive compensation practices were a contributing factor in the financial crisis, Treasury Secretary Tim Geithner outlined five main principles aimed at better aligning compensation practices with sound risk management and long-term growth. Geithner stressed that the administration was not capping executive pay. This story appears in Issue No. 2322, June 12, 2009  (ip access user).

Fed Establishes Bailout Redemption Criteria

The Federal Reserve Board has outlined the criteria it will use to determine whether the 19 bank holding companies that participated in the "stress tests" will be permitted to pay back capital contributions they received from the Treasury Department under the Troubled Assets Relief Program. This story appears in Issue No. 2321, June 5, 2009 (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.

Legislative Materials

Congressional Oversight Panel

• Oversight Report on Stress Tests, June 9, 2009, ¶95-988 (ip access user)

 

Federal Deposit Insurance Corporation

Agency Issuances

• Summer 2009 Issue of Supervisory Insights, June 16, 2009, ¶96-003 (ip access user)

• Minor Modification to the Temporary Liquidity Guarantee Program, June 5, 2009, ¶95-979 (ip access user)

• Interest Rate Restrictions on Institutions That Are Not Well Capitalized, June 3, 2009, ¶95-973 (ip access user)

• Debt Guarantee Component of Temporary Liquidity Guarantee Program Extended, June 3, 2009, ¶95-972 (ip access user)

• FDIC Provides Guaranteed Debt Claim Payment Form, May 27, 2009, ¶63-780B (ip access user)

• Consideration of the Special Assessment When Analyzing and Rating Financial Institutions, May 22, 2009, ¶55-260 (ip access user)

• Special Assessment Rule Adopted, May 22, 2009, ¶95-949 (ip access user)

• FDIC Advises on Extended Deposit Insurance Increase, May 22, 2009, ¶95-948 (ip access user)

• FDIC Approves GMAC Financial Services Participation in TLGP,  May 21, 2009, ¶95-945 (ip access user)

• Deposit Insurance Limit Increase Extended, May 20, 2009, ¶95-946 (ip access user)

Regulations

• 12 CFR 327.11 (ip access user) [¶16-111] Emergency Special Assessments

• 12 CFR 337.6 (ip access user) [¶16-606] Brokered Deposits

Federal Housing Finance Agency

Agency Issuances

• Proposal Would Require Reporting of Fraudulent Financial Instruments, June 17, 2009, ¶96-002 (ip access user)

• FHFA Proposes Post-Employment Restrictions, June 10, 2009, ¶95-989 (ip access user)

• Executive Compensation Rule Proposed, June 5, 2009, ¶95-980 (ip access user)

Federal Reserve Board

Agency Issuances

• Financial Accounting Standards Board Action to Impact Bank Capital, June 12, 2009, ¶96-000 (ip access user)

• Report on Credit and Liquidity Programs Issued, June 10, 2009, ¶95-994 (ip access user)

• Banks Submit Capital Plans, June 8, 2009, ¶95-987 (ip access user)

• Final Rule on Capital Adequacy Guidelines for Bank Holding Companies (Perpetual Preferred Stock), June 1, 2009, ¶95-960 (ip access user)

• Interim Capital Adequacy Rule (Subordinated Securities), June 1, 2009, ¶95-959 (ip access user)

• Supervisory Capital Assessment Program Criteria, June 1, 2009, ¶95-958 (ip access user)

• Exemption Granted to Permit Ally Bank to Make Automobile Purchase Loans, May 21, 2009, ¶80-440 (ip access user)

• Relief from Regulatory Reporting Requirements Granted to Discover Financial Services, May 19, 2009, ¶80-443 (ip access user)

• Exemption Granted to Allow Morgan Stanley Bank to Acquire Assets from Affiliates, April 22, 2009, ¶80-442 (ip access user)

• Exemption Granted to permit Goldman Bank to Acquire Assets from Parent, April 22, 2009, ¶80-441 (ip access user)

Regulations

• Appendix C to Part 225, Small Bank Holding Company Policy Statement, ¶13-873 (ip access user)

Federal Trade Commission

Agency Issuances

• Proposed Rulemaking to Address the Mortgage Assistance Relief Services, June 1, 2009, ¶95-962 (ip access user)

• Proposed Rulemaking to Address Unfair and Deceptive Mortgage Practices, June 1, 2009, ¶95-961 (ip access user)

Government Accountability Office

• GAO TARP Report Covers Transparency, Accountability Issues, June 12, 2009, ¶96-005 (ip access user

Interagency Statements

• Proposal Would Implement SAFE Act Registration Requirements, June 9, 2009, ¶95-978 (ip access user), ¶95-986 (ip access user)

Office of Thrift Supervision

Agency Issuances

• Observed Thrift Practices Including Sound Practices, May 22, 2009 ¶63-662 (ip access user)

Office of the Comptroller of the Currency

Agency Issuances

• OCC Guides on Investment Portfolio Risk Management, May 22, 2009, ¶62-096 (ip access user)

• Risk Based Capital Requirement Determined for Transactions with Trust Company, May 6, 2009, ¶81-648 (ip access user)

• Subsidiary Could Purchase Auction Rate Preferred Securities, April 3, 2009, ¶81-647 (ip access user

Office of the Inspector General for TARP

• Oversight Bodies to Monitor Pricing of Warrants, June 10, 2009, ¶95-999 (ip access user)

Securities and Exchange Commission

Releases

• Former Countrywide Executive Charged with Fraud, Litigation Release Number 21068 (June 4, 2009), ¶95-983 (ip access user)

Treasury Department

Agency Issuances

• Geithner Statement at Senate Banking Committee Hearing on Administration Proposal to Modernize the Financial Regulatory System, June 18, 2009, ¶75-207 (ip access user)

• Obama Administration Releases Financial Regulatory Reform Proposal, June 17, 2009, ¶75-201 (ip access user)

• Fact Sheet: Requiring Strong Supervision and Appropriate Regulation of All Financial Firms, June 17, 2009, ¶75-202 (ip access user)

• Fact Sheet: Strengthening Regulation of Core Markets and Market Infrastructure, June 17, 2009, ¶75-203 (ip access user)

• Fact Sheet: Strengthening Consumer Protection, June 17, 2009, ¶75-204 (ip access user)

• Fact Sheet: Providing the Government with Tools to Effectively Manage Failing Institutions, June 17, 2009, ¶75-205 (ip access user)

• Fact Sheet: Improving International Regulatory Standards and Cooperation, June 17, 2009, ¶75-206 (ip access user)

• Lending Survey Results Released, June 15, 2009, ¶96-001 (ip access user)

• TARP Standards for Pay, Corporate Governance Proposed, June 15, 2009, ¶95-996 (ip access user)

• Home Affordable Modification Program Agreements Released, June 10, 2009, ¶96-006 (ip access user)

• Compensation Principles Outlined; "Say on Pay" Supported, June 10, 2009, ¶95-995 (ip access user)

• 10 Banks to Repay $68 Billion in TARP Funds, June 8, 2009, ¶95-991 (ip access user)

• Home Affordable Modification Program Agreements Released, June 2, 2009, ¶95-970 (ip access user)

• Obama Fact Sheet on GM Restructuring Released, June 1, 2009, ¶95-969 (ip access user)

• Capital Purchase Program Monthly Lending Report, June 1, 2009, ¶95-968 (ip access user)

• TARP/CPP Contracts Available, May 22, 2009, ¶95-998 (ip access user)

• Additional GMAC Investment, May 21, 2009, ¶95-950 (ip access user)

• Backdated Capital Contribution Report Issued, May 21, 2009, ¶95-947 (ip access user)

• TARP/CPP Contracts Available, May 15, 2009, ¶95-971 (ip access user)

• Monthly Bank Lending Survey Released, May 15, 2009, ¶95-938 (ip access user)

• TARP/CPP Contracts Available, May 8, 2009, ¶95-954 (ip access user)

• Minutes of Financial Stability Oversight Board Meeting Published, April 6, 2009, ¶95-964 (ip access user)

 

FEDERAL BANKING NEWS SOURCES

Consumer Credit Guide

Federal Agencies Issue “Red Flags” FAQs

Six federal agencies, including the Board of Governors of the Federal Reserve System and the Federal Trade Commission, have jointly issued a set of frequently asked questions (FAQs) to help financial institutions, creditors, users of consumer reports, and issuers of credit cards and debit cards comply with the "Red Flags and Address Discrepancy Rules" designed to prevent identity theft. Federal Agency Releases ¶30,143 (ip access user).

FDCPA Fees, Costs Not Recoverable Against Plaintiff’s Attorney

The U.S. Court of Appeals for the Ninth Circuit has ruled that, under the federal Fair Debt Collection Practices Act's (FDCPA) "bad faith and harassment" provision, attorney's fees and costs may not be awarded against a plaintiff's attorney. In ruling that the FDCPA provision authorizes attorney's fees and costs only against offending plaintiffs, the Ninth Circuit noted that there is a presumption against awarding attorney's fees against attorneys. Hyde, et al. v. Midland Credit Management, Inc., et al. (9thCir) is at ¶52,258 (ip access user).

Right to Increase Interest Rate Not Properly Disclosed Under TILA

A credit card lender and its customers have split a decision on whether the lender properly disclosed its right to review the consumers' credit reports and increase the annual percentage rate on their cards based on risk. In connection with the federal Truth in Lending Act, the disclosure was adequate to give the lender the right to increase the rate, according to the U.S. Court of Appeals for the Ninth Circuit, but it failed to satisfy the requirement that it be clear and conspicuous. Barrer, et al v. Chase Bank USA, N.A. (9thCir) is at ¶52,255 (ip access user). 

State Law Update

• Connecticut: Legislation relating to bank branching requires financial institutions to comply with the John Warner National Defense Authorization Act, which caps the interest rate on consumer loans to members of the military at 36 percent and, among others things, prohibits a creditor from using a check or other method of access as security for a loan obligation. The measure also authorizes the banking commissioner to take enforcement action for violations of the Act and to enter into agreements with the Defense Department to exchange information concerning consumer complaints and alleged violations. Financial institutions covered by the legislation include Connecticut banks, credit unions, and other creditors whose lending activities in the state of Connecticut are subject to the Act. The law (P.A. 100) is at Connecticut ¶6406B (ip access user).

 

• Maine: Amendments to the Consumer Credit Code attempt to more equitably allocate fees paid to the Bureau of Consumer Credit Protection among licensed financial services providers in proportion to the resources needed to regulate those providers. The legislation increases license fees for debt collectors and loan brokers, and increases the cap on loan officer registration fees. In addition, providers of continuing education programs must submit each program to the Bureau for approval and pay a $100 fee. The law (Ch. 243) begins at Maine ¶5072 (ip access user).

• Nevada: Purchasers of credit card debt will be required to include certain information in a complaint filed in an action to collect on the debt as well as satisfying certain evidentiary standards. The law (Ch. 133) is at Nevada ¶6176A (ip access user).

• Tennessee: Changes to Tennessee's gift certificate law clarify that prepaid cards usable at multiple, unaffiliated merchants or at automated teller machines are not gift certificates subject to expiration and fee restrictions. The law (Ch. 277) is at ¶6398A (ip access user). 

• Vermont: A home mortgage protection measure for state residents amends the licensed lenders law to incorporate the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act), including requirements for the licensing of mortgage loan originators. The law (Act 29) begins at Vermont ¶7199 (ip access user).

Separate legislation prohibits credit card companies, including their creditors and collection agencies, from contacting a cardholder regarding a debt, late fee, or other charge if: informed that the cardholder is disputing the debt, late fee, or other charge; the cardholder is represented by legal counsel in the dispute; and the cardholder has provided the credit card company, or its creditor or collection agency, with the name, address, and telephone number of the legal counsel. The law (Act 55) is at Vermont ¶6342 (ip access user).

• Wyoming: Legislation modifying the Uniform Consumer Credit Code (UCCC) and Wyoming Residential Mortgage Practices Act establishes stricter oversight over mortgage loan originators, including licensing and education requirements. According to the measure's fiscal note, the Wyoming Division of Banking will establish both the initial license fee and annual renewal fee at $150. The UCCC begin at Wyoming ¶5021 (ip access user).

Smart Charts Highlights

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

·     The Legislative Developments Smart Charts are updated regularly as legislation is enacted, allowing users to keep up to date without waiting for a scheduled report. Links to legislative summaries and to full text of laws amended, repealed or added are provided. Recent updates include:

Secured Transactions Guide

Bankruptcy Code Does Not Eliminate Deficiency Claims

The "hanging paragraph" of the federal Bankruptcy Code does not prevent a creditor with a purchase money security interest (PMSI) in a surrendered vehicle from pursuing an unsecured claim for the portion of the debt not covered by the sale of the vehicle, the U.S. Court of Appeals for the Fifth Circuit has determined, joining the decisions of the Fourth, Seventh, Eighth, Tenth and Eleventh Circuits. Unless they are explicitly disallowed, claims under applicable state law are allowed in bankruptcy. Under Article 9 of the Louisiana UCC, a creditor may pursue a judgment for the remaining deficiency balance. Accordingly, the hanging paragraph does not allow a debtor to surrender a 910 vehicle in full satisfaction of his debt. In re Miller; DaimlerChrysler Financial Services Americas LLC v. Miller (5thCir) is at ¶56,187 (ip access user).

State Law Update

• Colorado: The provision of Revised Article 9 of the Colorado UCC that requires removal of Social Security numbers from financing statements in the custody of the secretary of state has been repealed. In its place, two provisions have been added to the statute governing the activities of the secretary of state that will provide for similar removal or "redaction" of Social Security numbers or tax identification numbers contained in a secured transaction record. The law is at Colorado ¶R839D (ip access user), ¶961 (ip access user) and ¶962 (ip access user).

• Minnesota: The law relating to the duties of filing offices in Minnesota has been amended to provide that, with limited exceptions, filing offices must now accept any financing statement submitted in a form adopted by the International Association of Commercial Administrators. In addition, the amended law clarifies that numbers assigned to each filing record do not need to contain the year of filing as the first four digits. The law begins at Minnesota ¶R831 (ip access user).

• Oklahoma: Sellers of seed, chemicals, herbicides or fertilizers in Oklahoma seeking an agricultural lien on a purchaser's crops for any payment due will no longer be required to provide notice to the owner of the land on which the crops are growing. The law now provides that a seller's lien will be effective if filed as an agricultural lien pursuant to Article 9 of the Uniform Commercial Code. The law appears at Oklahoma ¶R677 (ip access user) and ¶1109 (ip access user).

• Texas: A holder of garagekeeper’s lien must now file a copy of the notice of lien with the county tax assessor-collector's office in the county in which the repairs were made, in addition to paying $25 fee. The notice of lien must include the address at which the repairs were made, the name and taxpayer or employer identification number of the person that holds the possessory lien and a signed copy of the work order authorizing the repairs. In addition, the lienholder must make reasonable effort to allow the owner of the vehicle, or other lienholders of record, to inspect the vehicle. The law appears at Texas ¶1127 (ip access user) and ¶1129 (ip access user).

Smart Charts Highlights

Latest Changes on the Internet Research Network

The Secured Transactions UCC Filing Fees Smart Chart has been updated to reflect filing fee changes in South Dakota that will take effect July 1, 2009.

Financial Privacy Law Guide

Sending Fax Without Prior Relationship Violated TCPA

A sender of an unsolicited facsimile advertisement violated the Telephone Consumer Protection Act (TCPA), because there was no established business relationship between the parties, a federal district court has held. Making five cold calls to the recipient soliciting business and speaking to the recipient’s employees on one occasion did not constitute an established business relationship. Centerline Equipment Corp. v. Banner Personnel Service, Inc., et al. (NDIll) appears at ¶100-439 (ip access user)

Mortgage Company Settles Safeguard, Privacy Rule Violations

A mortgage loan company has agreed to settle charges that it violated the Federal Trade Commission's Safeguards Rule and Privacy Rule. In accordance with the final consent order, the company must establish and maintain a comprehensive data security program covering consumers’ personal information. The company allegedly failed to provide reasonable and appropriate security for sensitive consumer information. As a result, an intruder was able to direct the company’s computer network to send millions of outgoing spam e-mails without its knowledge, and the intruder could have accessed personal information without authorization. Also, the company failed to provide privacy notices. A story on In re James B. Nutter & Company is in Privacy Extra, June 30, 2009 (ip access user).

States Settle Claims Against TJX Companies

TJX Companies, Inc., has agreed to pay $9.75 million and to implement and maintain a comprehensive information security program, designed to safeguard consumer data and address any weaknesses in TJX’s systems in place at the time of a security breach, in order to settle claims brought by 41 states as a result of the data breach at the retailer's stores in January 2007 that placed thousands of consumers’ personal data at risk nationwide. A story on the settlement is in Privacy Extra, June 30, 2009 (ip access user).

Customer's Claims for Inaccurate Information Dismissed

A customer of a credit card company could not maintain an action under the Fair Credit Reporting Act (FCRA) against the company for allegedly reporting inaccurate information about his account to consumer reporting agencies, because he failed to notify the consumer reporting agency of the disputed information. In addition, any state common law claims asserted were preempted by the FCRA. A story on Dimedio v. HSBC Bank (DNJ) is in Privacy Extra, June 30, 2009 (ip access user).

State Law Update

• Indiana: A number of amendments and additions have been made to Indiana’s identity theft and security breach laws. An identity theft unit has been created in the Office of the Attorney General to investigate consumer complaints related to identity theft, identity deception, fraud and related crimes. The purpose of the unit is also to assist victims in obtaining refunds for fraudulent charges or debits, canceling fraudulent accounts and correcting false information in consumer reports, personnel files and court records. The law (H.B. 1121) begins at ¶44-501 (ip access user).

• Colorado: A new law in Colorado adds to the crime of identity theft knowingly using an instrument that contains the personal identifying information of another person to deceive a peace officer as to the actor's identity. It also criminalizes possession or control of a driver's license, government-issued identification card, Social Security card, or passport of another person without the permission of the other person, unless permission is authorized by law. The law (S.B. 93) begins at ¶30-502 (ip access user).

Individual Retirement Plans Guide

No Additional Tax on Distribution for Education Expenses

Distributions from a taxpayer's IRA that satisfied the statutory exception for higher education expenses were not a modification of her election to receive a series of substantially equal periodic payments and did not trigger the recapture tax under Code Sec. 72(t)(4). Although the additional distributions for higher education expenses were made within five years of the first annual periodic payment and before the taxpayer had attained age 59¹/₂, they did not result in a change in the method of calculating the annual periodic payments. Thus, the five-year rule prohibiting modifications was not violated, and the substantially equal periodic payment exception continued to apply.  Benz v. Commissioner is reported at ¶10,337 (ip access user).

Hot Topic of the Month

This month’s Hot Topic of the Month addresses the changes in the rules governing mortgage transactions. Comprehensive coverage of agency rulemaking issuances are found in Federal Banking Law Reporter Regulatory Developments, while underlying federal laws and regulations are compiled for easy reference.

 

Federal Reserve Board amendments to the regulations governing home mortgage loans to establish new regulatory protections for consumers in the residential mortgage market added four key protections for a newly defined category of "higher-priced mortgage loans" secured by a consumer's principal dwelling. For loans in this category, these protections will: prohibit a lender from making a loan without regard to a borrowers' ability to repay the loan from income and assets other than the home's value; require creditors to verify the income and assets they rely on to determine repayment ability; ban any prepayment penalty if the payment can change in the initial four years; and require creditors to establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans. The regulatory restrictions were adopted under the Truth in Lending Act and the Home Ownership and Equity Protection Act. The amendments take effect on Oct. 1, 2009, with the exception of the escrow requirement, which will be phased in during 2010 to allow lenders to establish new systems as needed (¶95-332 (ip access user)).

 The Fed has further revised the disclosure requirements for mortgage loans to implement the Mortgage Disclosure Improvement Act (MDIA), which was enacted in July 2008 as an amendment to the Truth in Lending Act. The MDIA seeks to ensure that consumers receive cost disclosures earlier in the mortgage process. Under the MDIA, creditors must comply with the new provisions on July 30, 2009. The Fed's implementing regulations apply to dwelling-secured consumer loans for which a creditor receives an application on or after July 30, 2009 (¶95-922 (ip access user)).

 

In addition, the Department of Housing and Urban Development (HUD) has amended its regulations implementing the Real Estate Settlement Procedures Act (RESPA) by requiring more timely and effective disclosures related to mortgage settlement costs for federally related mortgage loans to consumers. The amendments are designed to protect consumers from unnecessarily high settlement costs by: improving and standardizing the Good Faith Estimate (GFE) form to make it easier to use for shopping among settlement service providers; improving disclosure of yield spread premiums (YSPs) to help borrowers understand how YSPs can affect settlement charges; and ensuring that, at settlement, borrowers are aware of final costs as they relate to their particular mortgage loan and settlement transaction. Although the final rule becomes effective Jan. 16, 2009, compliance with the new requirements pertaining to the GFE and settlement statements is not required until Jan. 1, 2010 (¶95-551 (ip access user)). More recently, HUD has withdrawn and announced its intent to propose revised language relating to, a narrow provision of the final RESPA rule that redefines a prohibited practice called "required use" where consumers are steered toward higher cost mortgage services provided by affiliated businesses (¶95-932 (ip access user)).

 

The text of Regulation Z (12 CFR Part 226), as amended by the Fed, and the RESPA regulations (24 CFR Part 3500), as amended by HUD are found in Federal Banking Law Reporter Consumer Compliance Regulations. Caution notes alert users to amendments not yet effective and dual text is provided to display official text as it reads both before and after the effective date. For example, HUD’s good faith estimate requirements contained in 24 CFR 3500.7 at ¶28-887 (ip access user) note that compliance with the amended version is not mandatory until Jan. 1, 2010. Similarly, users can see the text of the Fed’s requirements for mortgage and variable-rate transactions in 12 CFR 226.19 at ¶27-773C (ip access user), as in effect until and after July 30, 2009.

          Underlying laws reproduced in Federal Banking Law Reporter Laws include:

• TILA Section 128, 15 USC 1638, as amended by the MDIA, at ¶4378 (ip access user).

• TILA Section 129 (HOEPA provisions) at ¶4379 (ip access user).

• RESPA (12 USC 2601—2617) beginning at ¶4001 (ip access user).

The 2009 Omnibus Appropriations Act (Public Law 111-8), signed by President Obama on March 11, 2009, also gives the Federal Trade Commission (FTC) rulemaking authority over mortgage loans. Section 626 of the Act, which directed the Commission to initiate a rulemaking proceeding with respect to mortgage loans, is reproduced in Federal Banking Legislative Documents at ¶75-160 (ip access user). Senate debate regarding concerns about the scope of the FTC’s authority and proposed removal of Section 626 is at ¶75-161 (ip access user).

To implement the Act, the FTC has commenced a rulemaking proceeding in two parts. The FTC is seeking comment on a proposed rulemaking that would address activities that occur throughout the life-cycle of a mortgage loan: advertising and marketing; origination, including underwriting, loan terms and disclosures; appraisals; and servicing (¶95-961 (ip access user)). Another proposal addresses the proliferation of loan modification and foreclosure rescue services in the current economy (¶95-962 (ip access user)).