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.
DC Circuit Sides with Federal Reserve Board on Meaning of Durbin Amendment to Dodd-Frank Act
By Stephen 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.
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").
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."
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.
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.
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.
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.
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.
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