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The FDIC will conduct two series of 4 telephone seminars on deposit insurance coverage for bankers. The first series begins on October 16 and ends on October 25. The second, identical series will be from November 6 through November 15. The series is designed to provide bankers with a comprehensive understanding of FDIC deposit insurance coverage.
For more information, see this release from the FDIC.
The Agencies have issued a proposed guidance concerning garnishment orders received by financial institutions.
Generally, federal law protects certain federal benefits – such as Social Security, Supplemental Security income, Veterans’ benefits, Federal Civil Service retirement benefits, and Federal Railroad retirement benefits – from inclusion in garnishment orders. Unfortunately, however, when garnishment orders are sought in state court by creditors and debt collectors, either some orders may not provide that certain funds are exempt from garnishment due to federal law or the customer’s account is a commingled mixture of exempt and non-exempt funds. Financial institutions, in an effort to comply with the state court order, typically put a freeze on the account until the issue can be resolved but because these exempt federal benefits are sometimes the only source of income for individuals, even a temporary freeze on the account can wreak havoc on an individual’s financial security.
The proposed guidance is intended to solicit comments regarding how to comply with both federal and state laws. The proposed guidance also proposes best practices, such as promptly notifying the customer of a garnishment order, determining whether accounts contain only exempt funds, notifying the creditor that the account may contain exempt funds, minimizing the cost to the customer by refraining from charging certain fees, and lifting the freeze as soon as permissible.
Comments can be made via the Federal Reserve’s website or by email, fax, or snail mail.
For further information contact Mary Zambreno.
A report has been published by Celent outlining the seven habits of highly effective remote deposit capture deployers (click here for link). For more on remote deposit capture, see this prior article on the Iowa Banking Law Blog.
Eight years after the passage of the Gramm-Leach-Bliley Act, the SEC and Federal Reserve adopted rules implementing the bank broker provisions of GLBA. For an outline of the key provisions of Regulation R click here. We will have more on this important topic later.
The FDIC has reported its second quarter financial results for the Deposit Insurance Fund. THe DIF earned $1.06 billion in the first 6 montyhs of 2007, raising the balance to $51.2 billion.
Disease management and mail order pharmacy services, according to the Federal Reserve, are "complementary to a financial activity." Thus, the Federal Reserve approved an application for a de novo industrial loan company whose primary business is selling and underwriting health insurance and who also provides mail order pharmacy services through its subsidiaries. The ILC will be named ARCUS Financial Bank. See article by the Banking Law Prof, and the Federal Reserve Release.
As reported in the September 13, 2007 American Banker, a federal judge dismissed a borrower’s Fair Debt Collection Practices Act (FDCPA) claim, concluding the National Bank Act (NBA) usury preemption benefits non-bank buyers of charged-off debt to the same extent it benefits the national bank originating the loan. See Munoz v. Pipestone Fin., LLC, No. 04-4142 (JNE/SRN), 2007 U.S. Dist. LEXIS 64314 (D. Minn. Aug. 30, 2007).
The plaintiff, Douglas Munoz, claimed Pipestone Financial violated FDCPA by trying to collect usurious interest on a debt it purchased. Munoz opened a credit card account with First USA Bank of Delaware (First USA) and eventually defaulted on about $7,500 of debt. First USA assigned the debt to Unifund CCR Partners, who in turn sold the account to Pipestone.
The FDCPA prohibits debt collectors from collecting interest unauthorized by contract or by law. Minnesota law limits interest rates to 8%. Nevertheless, Pipestone continued charging Munoz the 11.99% interest rate established in the original First USA card member agreement.
Although state law prohibited Pipestone from charging interest rates over 8%, the NBA authorized First USA, a national bank chartered in Delaware, to charge Munoz 11.99%. Because the national bank originated Munoz’s loan, that debt remained subject to preemption, even though non-bank Pipestone bought the debt. The court held it "must look at the originating entity (the bank), and not the ongoing assignee" to determine whether the NBA applied. A national bank originated the loan, so the debt enjoyed exemption from state usury laws and Pipestone properly charged Munoz the 11.99% interest rate provided by his card member agreement.
Any contrary ruling would have dramatically impacted the banking industry. If the court had declared buyers of charged-off debt to be subject to state usury laws, card issuers would have faced incredible challenges in trying to sell charged-off receivables.
For further information contact Megan Erickson of Dickinson Mackaman Tyler & Hagen, P.C.
In April 2007, The IRS issued final regualations regarding the application of Internal Revenue Code Section 409A to plans and arrangements involving nonqualified deferred compensation plans. Such plans include provisions found in various employment-related documents.
The IRS announced on September 10, 2007, that it had extended the deadline for adoption of plan documents that comply with Section 409A from December 31, 2007 to December 31, 2008. Although this additional time to complete documentation provides welcome relief, it should be emphasized that some issues remain subject to the December 31, 2007 deadline.
The full article on this topic is available here, in the Community Bank Brief, a periodic newsletter from the Banking Practice Group of Dickinson Mackaman Tyler & Hagen, P.C.
If you have any questions, contact Rebecca Boyd Dublinske or Arthur F. Owens.
According to a report by the Mortgage Bankers Association, Iowa ranks fourth in the nation in subprime foreclosure rate, with a rate of 8.63% (of Iowa loans). Iowa ranks ninth in total foreclosure rate with 1.65% (of Iowa loans). In an article on ABC's Ottumwa affiliate website the president of the Iowa Bankers Mortgage Corporation said that most of these subprime loans were given out by brokers and national institutions.
In response to this growing problem, Attorney General Tom Miller announced an ititiative to assist borrowers facing foreclosure and to encourage loan modification between lender and borrower. The project will feature a Foreclosure Hotline borrowers can call for assitance. Miller stated that 50% of people foreclosed upon never contact their lender to attempt to avoid foreclosure. It is his hope that this initiative will increase communication between lenders and borrowers and decrease the rate of foreclosures by guiding borrowers through the maze that can be created when the originating party transfers the loan to another party, who may then sell the loan further down the line or have another company service the loan.
This effort meshes very well with the guidance issued by the federal regulators (discussed here). The Attorney General and the regulators seem to understand that it is not community banks causing this problem, but brokers and other less regulated entities. Hopefully, Congress will see this as well.
In an update to an earlier cnet.com article (discussed here), author Robert Vamosi discusses a Cloudmark and Harris Interactive survey about the effects of phishing on consumer behavior.
According to the survey, about 37% of the respondents have opened emails from unknown senders, 13% have clicked on links contained in emails from unknown senders, 9% have opened attachments in emails from unknown senders, and 6% have responded to emails claiming problems with the recipient’s account. Each type of behavior greatly increases an individual’s chances of becoming victimized by a hacker. The article also states that about 70% of those who responded said that they have changed their behavior as a result of the dangers of phishing and 20% of those people said that they would likely decrease the frequency of their online transactions, which might have a negative effect on the economy.
However, the author stresses that the phishing attack is not on the bank or the financial institution – the attack is actually on the customer. Nonfinancial sites are also targeted since the goal of a hacker is often simply to obtain an individual’s credit card and personal information. Be sure to make your customers aware of when, if ever, your institution will send them an email so they can better avoid becoming a phishing victim.
The most recent edition of the FDIC Quarterly features two studies--on on the feasibility of privatizing deposit insurance and one on the effectiveness of the FDIC's Money Smart financial education program.
The Employment Practice Group at Dickinson, Mackaman, Tyler & Hagen P.C. has issued its Fall newsletter. Included are articles on increased immigration enforcement, a case law update on the Americans with Disabilities Act, changes in the NLRB presumptions in backpay calculations, and a summary of Ollis v. Hearthstone Homes, an interesting case on religious discrimination.
In FTC v. Check Investors, Inc. the 3rd Circuit upheld injunctive relief and over $10 million in fines for violations of the FTC Act and the Fair Debt Collection Practices Act (FDCPA) involving collecting on defaulted checks (NSF checks). (Check Investors is in the business of buying checks written with insufficient funds. The court held that NSF checks are debts under the FDCPA, that the payors of the checks are consumers, and that defendants were debt collectors and not creditors under the FDCPA.
Red Sox v. Yankees, Cubs v. Cardinals, Ohio State v. Michigan, Macs v. PC's . . . credit unions v. banks. As described in an article in American Banker, www.bankerspank.com features various videos parodying the Mac v. PC television ads with the out-of-touch PC user and young, hip Mac user. In these ads, however, the young, hip guy represents credit unions while the other guy represents banks. The author of the website remains anonymous.
The federal banking regulators (the FDIC, Federal Reserve, OCC, OTS, and NCUA), along with the Conference of State Bank Supervisors (CSBS) issued a statement encouraging regulated institutions that service mortgage loans to employ certain "loss mitigation techniques" that would preserve homeownership. The statement is a follow-up to the April 2007 Statement on Working with Mortgage Borrowers and the July 2007 Statement on Subprime Mortgage Lending. Unlike these previous statements, which urged prudent workout arrangements, the new statement is focused on mortgage loans that have been transferred into securitization trusts.
The regulators state that when faced with an increased risk of default, servicers of loans should: contact the borrower and assess their ability to repay, assess whether default is reasonably foreseeable, and explore, where appropriate, a loss mitigation strategy that avoids foreclosure, such as loan modifications, payment deferral, conversion into fixed rate, and capitalization of delinquent amounts.
In considering loss mitigation techniques, the statement urges services to consider the borrower's income, debt, and housing related expenses. Servicers are also urged to refer borrowers to government programs, non-profits, and counseling services that could assist the borrower. The statement claims that "loss mitigation techniques" that preserve homeownership are less costly than foreclosure.
This guidance was issued as political pressure to address the mortgage industry mounts. Presidential candidates have increasingly integrated mortgage and foreclosure issues into their agendas. President Bush threw his hat in the ring last week by announcing that his administration would put forth proposals to prevent some expected defaults over the next two years.
Unfortunately, this regulatory statement may not stem the congressional tide to over-regulate the industry.
