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Newsletter of the ABA Business Law Section Banking Law Committee
  Banking Law Committee Journal
April 2014
Join the Committee Online

Message from the Chair

Featured Articles
  Sixth Circuit Invalidates HUD's Ten Factor Affiliated Business Arrangement Test
By Robert M. Jaworski

  DC Circuit Sides with Federal Reserve Board on Meaning of Durbin Amendment to Dodd-Frank Act
By Stephen G. Harvey and Seth William Stern

  Disparate Impact - The Equivalent of the "Little Black Dress"
By Andrea Shaw and Adrianna DeRice

  Cross-Border Lending to Canada: Canadian Regulatory Considerations
By Paul Belanger, Dawn Jetten and Vladimir Shatiryan

  FDIC Issues Warning Over D&O Liability Policies and Civil Money Penalties
By Valerie J. Hamm

  Creditors Beware: Common Pitfalls of the Amended ECOA Valuations Rule
By Nancy J. Sparrow and Carolyn L. Payne

  CFPB's Focus and Enforcement Activity: Mortgage Origination and Servicing
By Elizabeth Bohn

  A Case Study of the Enforceability of Yield Maintenance Clauses
By Adam C. Hall

  Is Mortgage Electronic Registration Systems, Inc. Liable for Assignment of Mortgage Recording Fees?
By Stephen M. Hladik, William E. Miller and Pamela L. Cunningham


Editorial Board:

Travis P. Nelson
    Editor-in-Chief
    Reed Smith, LLP
    tnelson@reedsmith.com

  Message from the Chair
   
Sally Miller
After a brief hiatus, we are pleased to announce the reconstituted Banking Law Committee Journal, under the leadership of Travis Nelson of Reed Smith LLP. In this edition of the Journal, we see an example of the expansive variety of backgrounds and practices of our Committee's members. Paul Belanger, Dawn Jetten, and Vladimir Shatiryan of Blake, Cassels & Graydon LLP in Toronto, Canada, provide helpful insights into cross-border lending by U.S. institutions into the Canadian market. Andrea Shaw of TD Bank, NA, and Adrianna DeRice of the University of Maine, both in Portland, ME, provide a witty and insightful commentary on the disparate impact analysis under the Equal Credit Opportunity Act. Robert Jaworski, of Reed Smith LLP in Princeton, NJ, offers his views on the application of the Sixth Circuit's decision in Carter v. Welles-Bowen, Inc. on HUD's affiliated business arrangement test. Elizabeth Bohn of Carlton Fields in Miami, FL, has provided a survey of recent CFPB's issues in the area of mortgage lending and servicing. Adam Hall of Crowe & Dunlevy in Oklahoma City, OK, offers advice on commercial transactions issues. Steve Harvey of Steve Harvey Law LLC and Seth Stern provide a very timely analysis of a March 21, 2014 decision from the D.C. Circuit that constitutes a significant victory for banks and credit unions. Valerie Hamm of The Hamm Law Group in Tampa, FL, offers her views on the FDIC's guidance issued last fall regarding D&O liability policies. Nancy Sparrow and Carolyn Payne from e-farmcredit.com in Louisville, KY point out some common pitfalls of the amended ECOA valuations rule. Finally, Stephen Hladik, Pamela Cunningham, and Gordon Miller, of Hladik, Onorato & Pearlstine, LLP, in North Wales, PA, discuss the potential liability of MERS for assignment of mortgage recording fees. This collection of authors, who come from throughout the U.S. and from Canada, who are in-house counsel as well as practitioners at a variety of firms from small boutique shops to among the largest international law firms, and who practice in a wide variety of areas of financial services law, truly show that the Banking Law Committee is a big tent that offers something for members of all backgrounds.

William F Kroener III
Chair, Banking Law Committee


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  Featured Articles
   
Sixth Circuit Invalidates HUD's Ten Factor Affiliated Business Arrangement Test
By Robert M. Jaworski

The U.S. Department of Housing and Urban Development ("HUD") recently suffered another setback in court with respect to its administration of the Real Estate Settlement Procedures Act ("RESPA"). RESPA broadly governs the residential real estate settlement services industry and, in particular, § 8 of RESPA prohibits the payment of incentives for the referral of settlement service business. A HUD interpretation of § 8 was recently discounted by the U.S. Supreme Court in the Quicken Loans case when the Court refused to give Chevron deference to HUD's position, expressed in a 2001 Statement of Policy, that a fee need not be split or shared between two parties for § 8(b) of RESPA to be violated. Now comes the Sixth Circuit's decision in Carter v. Welles-Bowen, Inc., decided November 27, 2013, in which the court refused to give deference to a 1996 HUD Statement of Policy concerning "affiliated business arrangements" ("AfBAs"). As in the Quicken Loans case, the Bureau of Consumer Financial Protection, which took over the administration of RESPA from HUD in 2011, was also a loser here, having unsuccessfully intervened in support of HUD's position.


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DC Circuit Sides with Federal Reserve Board on Meaning of Durbin Amendment to Dodd-Frank Act
By LStephen G. Harvey and Seth William Stern

On March 21, 2014, in a significant victory for banks and credit unions that issue debit cards and for the companies that own and operate debit card networks (i.e., Visa and MasterCard), the DC Circuit upheld the Federal Reserve Board's Regulation II, which implemented the Durbin Amendment to the Dodd-Frank Act by capping interchange fees for large issuers at 21 cents plus 5 basis points for fraud losses. It also requires banks to offer only two unaffiliated networks for processing debit card transactions.


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Disparate Impact - The Equivalent of the "Little Black Dress"
By Andrea Shaw and Adrianna DeRice

Let's face it: the "little black dress" is a staple in every woman's wardrobe. It's practically a uniform that is issued to you upon reaching adulthood. Disparate impact theory of discrimination has become the regulatory agencies' "little black dress." They all are aware of it and are wearing it at every opportunity. This article focuses on current trends in fair-lending enforcement, specifically in the context of disparate impact, or what we have come to think of as "the little black dress" of the fair-lending enforcement world. Although there are multiple theories federal and state regulatory agencies can use to combat discrimination, disparate impact is getting all the attention. This article provides an overview of the theory and insight on current enforcement trends by the Department of Justice ("DOJ") and the regulatory agencies that supervise financial institutions: the Consumer Financial Protection Bureau ("CFPB"), the Federal Deposit Insurance Corporation ("FDIC"), and the Office of the Comptroller of the Currency ("OCC") (collectively, the "Regulatory Agencies").


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Cross-Border Lending to Canada: Canadian Regulatory Considerations
By Paul Belanger, Dawn Jetten and Vladimir Shatiryan

Canada has a highly concentrated financial sector with six large Canadian domestic banks holding 93 percent of all bank assets - one of the highest concentration levels in G7 countries. Perhaps because of this, there is a growing interest by U.S. and other foreign lenders to participate in the Canadian financial sector. Currently, 24 foreign bank subsidiaries and 27 foreign bank branches operate in Canada with a total of Can$185.9 billion assets in Canada, compared to Can$3,663 billion held by Canadian domestic banks. Foreign banks also participate in the Canadian financial sector by making cross-border bilateral and syndicated commercial loans to Canadian borrowers without maintaining an authorized presence in Canada. These cross-border lending activities have become more prevalent since 2008 after the Government of Canada eliminated the withholding tax on arm's length outbound interest payments made by Canadian borrowers to non-resident lenders. The purpose of the elimination of the withholding tax, as Canada's Department of Finance put it, was to "increase access to foreign capital markets and reduce costs for Canadians and Canadian businesses that borrow from foreign lenders."


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FDIC Issues Warning Over D&O Liability Policies and Civil Money Penalties
By Valerie J. Hamm

Concerned over a recent upswing in D&O policy exclusions and provisions negatively impacting insurance coverage, the Federal Deposit Insurance Corporation ("FDIC") recently released an Advisory Statement entitled "Director and Officer Liability Insurance Policies, Exclusions, and Indemnification for Civil Money Penalties" (FIL 47-2013, October 10, 2013). In the Advisory, the FDIC reminded insured depository institutions and their directors and officers that D&O liability insurance remains an important risk mitigation tool, and cautioned that exclusions contained in D&O policies could both impair the recruitment and retention of qualified management, and subject management to the very real possibility of personal liability for damages should they be sued. The FDIC also warned institutions and their managment that insured depository institutions cannot purchase insurance to indemnify directors and officers against Civil Money Penalties ("CMPs"), even in the event the directors and officers reimburse the institution for the premiums used to purchase the coverage.


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Creditors Beware: Common Pitfalls of the Amended ECOA Valuations Rule
By Nancy J. Sparrow and Carolyn L. Payne

A common misconception of the tidal wave of new regulations that went into effect during January 2014 is that the rules only applied to consumer purpose loans. For a majority of the new rulemakings, the regulations promulgated by the Consumer Financial Protection Bureau ("CFPB") did in fact only impact loans made primarily for personal, family or household needs.2 However, amendments to the Equal Credit Opportunity Act's regulations regarding appraisals3 apply to both consumer and business purpose credit extensions. Additionally, the CFPB expanded the rule's applicability to now include credit unions, which used to be exempt from ECOA's appraisal requirements.4 This article examines the amended appraisal requirements and best practices for successful implementation of the amended rule.


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CFPB's Focus and Enforcement Activity: Mortgage Origination and Servicing
By Elizabeth Bohn

Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 20102 ("the Act") created and authorized the Consumer Financial Protection Bureau ("CFPB" or "the Bureau") to implement, examine for compliance with, and enforce "Federal consumer financial law." Under the Act, CFPB has regulatory, supervisory, and enforcement authority of depository institutions and credit unions with total assets of more than $10 billion, as well as certain nonbanks, regardless of size, including mortgage companies, originators, brokers, and servicers.


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A Case Study of the Enforceability of Yield Maintenance Clauses
By Adam C. Hall

With interest rates at historically low levels following the financial crisis of 2008, many commercial borrowers have challenged the enforceability of yield maintenance prepayment clauses contained in commercial real estate loan documentation. These challenges have given rise to a considerable amount of case law that is instructive as to what might constitute a properly drafted yield maintenance prepayment clause and whether a properly drafted yield maintenance prepayment clause is enforceable. This article provides a brief case study of the enforceability of yield maintenance prepayment clauses that are commonly found in commercial real estate loans.


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Is Mortgage Electronic Registration Systems, Inc. Liable for Assignment of Mortgage Recording Fees?
By Stephen M. Hladik, William E. Miller and Pamela L. Cunningham

In a battle playing out across the country in multiple forums, there is a debate about whether the Mortgage Electronic Registration Systems, Inc. or its parent corporation MERSCORP, Inc. (hereafter, MERS) is liable to the local county recorder of deeds offices for recording fees for assignments of mortgage. This article examines the types and locations of the cases, the status and the legal questions involved. The article also focuses on the matter currently pending in the United States District Court for the Eastern District of Pennsylvania where the Montgomery County Recorder of Deeds, Nancy J. Becker, has recently succeeded in obtaining class certification in her action against MERS.


More...

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