Iowa Banking Law Blog

Saturday Links

ruI was just about to write an entry on the importance of an electronic document and email retention policy when I noticed that Rush on Business had beat me to the punch.  For a concise, well-written summary on the topic see "Document Retention and Electronic Discovery."

The Federal Reserve Bank of Chicago prepared a summary of the 12 Federal Reserve district's analysis of the state of the U.S. economy.  (note that this summary and the analysis itself does not include the market occurrences of the past week).

Roth & Company, P.C., in addition to a tax updates blog, has an Iowa Bank Tax Guide available online.  The Guide is an excellent resource and provides answers to many basic Iowa Bank Taxation questions.

Celent, a financial institutions research and consulting firm, has summary of reports on Online Account Opening and Multifactor Authentication.  The full reports must be purchased (presumably), but the summaries still contain some interesting information.

Lastly, the Business and Corporate Practice Group at Dickinson, Mackaman, Tyler & Hagen, P.C. has the Spring edition of its newsletter available online.  It contains articles on liability for executive compensation, shareholder preemptive rights, and stock purchase agreements.  Stay tuned for future newsletters.

No Farm Credit System Expansion in 2007 Farm Bill

On Thursday, the House approved an amendment to the 2007 Farm Bill removing expansionist Farm Credit System provisions that may have allowed the FCS to move into commercial and residential lending.  State and National Bankers Associations lobbied hard for this amendment and consider it a significant victory.  Anyone who has seen Schoolhouse Rock, however, knows that this is “Just a Bill” and has a long way to go before becoming the law.  For those under 40, here is a link to the YouTube video of Schoolhouse Rock's “I’m Just a Bill”).     

Interagency Statement on Bank Secrecy Act

Last week, the federal banking agencies issued a Statement with an important reminder to banks: Stay on top of Bank Secrecy Act compliance!

            Specifically, the Statement reiterates that at minimum, all BSA Compliance Programs must include five key elements:

1.      A system of internal controls capable of assuring BSA compliance;

2.      Independent tests that monitor BSA compliance;

3.      A designated individual responsible for monitoring BSA compliance;

4.      Training programs that educate employees about BSA compliance; and

5.      A customer identification procedure that enables banks to form reasonable beliefs as to the true identity of its customers.

            The Statement states that federal banking agencies will issue cease and desist order to banks that fail to maintain adequate BSA Compliance Programs.  Before a cease and desist order is issued, however, the problem must be identified in a written document that is communicated to the institution’s board of directors.   

            This Statement serves as a reminder of the importance of a strong BSA Compliance Program.  It also emphasized the serious implications that can result from failing to correct a problem that a federal banking agency has brought to your attention.  As an example, it states that if in an examination an agency finds an inadequate BSA training program, and at the next examination the training program problem is fixed, but another BSA compliance problem is discovered, a cease and desist order will ordinarily not be issued.  If, however, the training program is still deficient at the second examination and steps have not been taken to remedy the problem, the agency may issue a cease and desist order.

If you have any questions regarding BSA Compliance Programs contact Howard Hagen.     

Remote Deposit Capture -- Proceed with Caution

In the quest to meet the needs of merchant-customers, your bank may be tempted to rush into contracts with vendors of remote deposit capture technology.  It is well worth your time to take a hard look at the contract before signing.  Usually, and not surprisingly, the contract provided by the vendor is drafted heavily in its favor.  Take a second look at your merchant-customers, too.  Are they, and their employees, ready to take on the responsibility of storing checks?  What measures are in place to safeguard checks and prevent double-presentment?  Please read the full article on our website for more information about entering into remote deposit capture vendor and service contracts. 

For more information contact Emily S. Pontius of Dickinson, Mackaman, Tyler & Hagen, P.C.  

Employers Now Liable for Overdraft Charges Under Iowa Law

Beginning July 1, 2007, employers are liable for overdraft charges incurred by employees when direct deposits are not transferred to the employees’ accounts on or by the regular payday. The overdraft charges may be the basis of a claim under Iowa Code section 91A.10 and for damages under section 91A.8. There is the potential for "liquidated damages" and the employee may also recover attorney fees.  This change will not take a bank off the hook for any errors or delays in its role in receiving a direct deposit.  It is likely that if an employee makes a claim against an employer for failure to deposit funds, the employer may turn to the bank for indemnification if the error was attributable to the bank.  Therefore, banks should be sure their direct deposit process adequately protects against any delays or errors that could be attributable to the bank. 

Saturday Links

On Saturdays, the Iowa Banking Law Blog will post links to recent articles available on the web that may be of interest to you or others at your bank.  If you know of an article that would of interest to the Iowa banking community, feel free to post a comment with a link and a very brief description.

BankNews.com has a July Special Report on the Unbanked and Underbanked Market.  It features links to articles, presentations, and other publications outlining trends in this untapped market and what banks, regulators, and other entities (such as Wal-Mart) are doing to reach out to this market.

The Federal Reserve Bank of Chicago released an excellent article entitled "Are mobile payments the smart cards of the aughts?"  In the words of the author, the article "compares the much anticipated but ultimately stall smart card revolution of the 1990s with the current expansion of mobile payment platforms, and asks how mobile payments fit into the larger payment system."

The Banking Law Professor Blog points out that the Federal Reserve Bank of San Francisco posts a monthly, one-page summary of the state of the U.S. economy.  These succinct, "Cliff's Notes" on the U.S. economy are a great way to stay apprised of general market trends.

Lastly, the Labor and Employment Practice Group of Dickinson, Mackaman, Tyler & Hagen, P.C. released the summer edition of its period newsletter "Hire Perspectives."  This newsletter may be of interest to the person(s) responsible for human resources at your bank.  The current edition features articles on coordinating FMLA leave with short term disability and sick/vacation leave benefits, supervisor liability for a subordinate's sexual harassment of another, and a new, online "Fair Labor Standards Act Overtime Calculator" unveiled by the Department of Labor. 

Valuation Issues and Reverse Stock Splits

It is important to read the footnotes when considering how a minority interest in your bank or bank holding company might be valued. Iowa Code §524.1406(3) permits the use of minority and marketability discounts in determining fair value in connection with appraisal rights for banks and bank holding companies. We have successfully represented a client in a district court case in which this provision was recognized and upheld against a constitutional challenge. At first glance it might appear that the Iowa Supreme Court’s July 13 2007 decision in Northwest Investment Corp. v. Wallace reaches a different result. In that new reverse stock split case an appraised value was approved that not only did not apply such discounts but added a control premium. The critical distinction is found in footnote 3 which indicates that the corporation involved was not a "bank holding company" within the meaning of Iowa Code §524.1801. Therefore, the generally applicable corporate standards for determining fair value set forth in Iowa Code §490.1301 applied, rather than the special rule for banks and bank holding companies found in Iowa Code §524.1406(3).

For more information contact Arthur F. Owens, who practices primarily in business and corporate law.

OCC Start Consumer Protection Website: www.helpwithmybank.gov

The OCC's new website, www.helpwithmybank.gov offer consumers answers, advice, and the means with which to make complaints against banks.  It is a very user-freindly site, listing topics such as "account errors," "overdrafts," "interest rates," and "denial of credit."  Clicking on a given topic will bring a consumer to a page with answers to common consumer inquiries and OCC contact information.  The site is relevant to both national banks and and other non-national financial institutions, as it is intended to help consumers of all financial institutions, and will direct consumers to the appropriate agency for resolving their problems.  States and other federal regulatory bodies may follow suit and offer their own user-friendly consumer protection website.  With the advent of the internet and the help of sites like www.helpwithmybank.gov, consumers today are more knowledgeable of their rights than ever.  This site serve as a reminder that banks that are not vigilant in their dealings with consumers face a serious risk of private suits and regulatory sanctions. 

OCC Issues Proposal for Regulatory Relief

On July 3, 2007 the OCC issued proposed rules intended to reduce the regulatory burden faced by national banks and to update various OCC regulations.  The 74 page proposal was published in the Federal Register.  While the changes are relatively modest, the proposal shows that the OCC is cognizant of significant regulatory burden faced by national banks.  A few of the changes are outlined below:

-An applicant for a national bank would no longer need to file a proxy with the local district office and the OCC's securities practices division.  Under the proposed rule filing with the securities division alone will suffice.

-The review period for a change in permanent capital is cut from 30 days to 15 days.

-Bank officers and employees who make investment recommendations for customers will have 20 additional days to report personal transactions to the bank.  They will now have 30 days after the end of the quarter to make such reports.

-When opening an intermittent branch every year at a specific location or event multiple applications will no longer be required.

The changes given above are only examples of the changes proposed.  In addition to these, the proposed changes streamline the rules governing electronic banking, community development investments, record keeping requirements for securities transactions, fiduciary powers, and activities for operating subsidiaries.

State bank regulators may review these changes to determine whether they should follow suit to maintain some semblance of competitive equality.