Archive for July, 2009
Federal Agencies Announce Final Rule on Procedures to Enhance the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies
The federal financial regulatory agencies, in conjunction with the Federal Trade Commission (FTC), have published final rules on procedures to enhance the accuracy and integrity of information furnished to consumer reporting agencies (CRAs). The rule is published pursuant to the Fair and Accurate Credit Transactions Act (FACTA) and Fair Credit Reporting Act (FCRA), which generally describe the responsibilities of persons that furnish consumer information to CRAs. The rule becomes effective July 1, 2010.
The final rule is broken into three parts: (1) accuracy and integrity regulations; (2) accuracy and integrity guidelines; and (3) direct dispute regulations.
1. Accuracy and Integrity Regulations
• Definitions – the rule defines: accuracy, direct dispute, furnisher, identity theft, and integrity.
• Policies and Procedures – a furnisher must “establish and implement reasonable written policies and procedures regarding the accuracy and integrity” of the consumer information it furnishes to CRAs. The policies and procedures must be “appropriate to the nature, size, complexity and scope of each furnisher’s activities.”
• Guidelines – furnishers must “consider the guidelines in Appendix A.” The Guidelines provide suggestions regarding (i) the nature, scope and objectives of policies and procedures, (ii) establishing and implementing policies and procedures and (iii) specific components of policies and procedures that should be addressed.
• Reviewing and Updating – furnishers must periodically review their policies and procedures and update them as necessary.
2. Accuracy and Integrity Guidelines (found in Appendix A)
• Nature and Scope – a furnisher should consider the types of its business activities, the nature and frequency of information it provides to CRAs and the technology it uses.
• Objectives – a furnisher should provide information that is accurate and has integrity (the Guidelines give examples of such information). A furnisher should reasonably investigate consumer disputes and update information it furnishes as necessary.
• Implementation – a furnisher should identify any practices it has that could compromise the accuracy and integrity of information and evaluate the effectiveness of its existing policies and procedures and specific methods (including technology) used to provide information to CRAs.
• Specific Components – a furnisher should, as appropriate: implement a system to furnish consumer information to CRAs; use standard data reporting formats; maintain records; implement internal controls; train staff; oversee relevant service providers; furnish information to consumers and CRAs after mergers, acquisitions and other such transactions; delete, update and correct information as appropriate; investigate disputes; communicate with CRAs; provide sufficient identifying information; periodically evaluate its practices; and comply with the FCRA and its implementing regulations.
3. Direct Dispute Regulations.
A direct dispute is a dispute submitted directly to the furnisher by the consumer regarding information about the consumer’s account or that the furnisher provided to a CRA. If the furnisher receives a proper direct dispute notice, then the furnisher must:
• conduct a reasonable investigation;
• review all relevant information;
• complete the investigation and send a report on the results to the consumer; and
• promptly notify any CRAs that received inaccurate information.
A proper direct dispute notice:
• identifies the account or relationship and the specific information disputed
• includes supporting documentation
• relates to: the consumer’s liability for the account or debt; the terms of a credit account or debt; the consumer’s performance or other conduct concerning the account or relationship with the furnisher; or any other information regarding the account or relationship that bears on the consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.
A furnisher is NOT required to conduct an investigation if:
• the dispute relates to: the consumer’s identifying information; the identity of consumer’s employers; requests for consumer reports; information from public records; fraud alerts or active duty alerts; information provided by another furnisher; or information supplied by a credit repair organization.
• the consumer submits the notice to a wrong address; or
• the dispute is “frivolous or irrelevant.”
A dispute is frivolous or irrelevant if the consumer did not provide sufficient information, the dispute is substantially the same as a previous dispute or the dispute relates to exempt information. Upon making a determination that a dispute is frivolous or irrelevant, the furnisher must notify the consumer within 5 business days, include reasons for the determination, and identify any missing information.
A complete copy of the final rules can be found here.
Add comment July 24, 2009
Accidental Creditors Beware: FTC Identity Theft Red Flags Program Starts: August 1, 2009
Do you bill customers after providing goods or services? If so, you may be unaware that you are considered a “creditor” under the Federal Trade Commission’s Identify Theft Red Flags Rule and must determine if you are required to implement an identity theft prevention program by August 1, 2009. Such entities include:
- Construction companies
- Utility companies
- Mortgage brokers
- Merchants who offer Retail Installment Sales Contracts
- Health care providers
- Accountants, architects, engineers, consultants, etc.
ALL creditors must evaluate whether or not they are required to have a program by August 1. However, only creditors who have “covered accounts” (as defined in the Red Flags Rule) must implement a program by August 1.
For more details on how to determine the requirements for your business, click here or contact Mark Hargrave or Selena Nelson. If you are a health care provider, contact Carl Bowman, Wayne Henry or Patricia Zieg.
Add comment July 24, 2009
Wanting to Bid on Failed Bank Acquisitions? FDIC Proposal Rankles Private Equity Suitors
The FDIC recently unveiled a Proposed Statement of Policy (available here) on Qualifications for Failed Bank Acquisitions with the intention of providing guidance to private capital investors interest in acquiring or investing in the assets and liabilities of failed banks or thrifts. Although the FDIC recognizes the need for additional capital in the banking system, the FDIC’s policy statement seeks to minimize the safety and soundness concerns of introducing these new investors into the banking system. Under the proposed policy statement, the FDIC would establish standards for bidder eligibility in connection with the resolution of failed banks.
According to the FDIC, the standards provide for:
- capital support of the acquired depository institution;
- agreement to a cross guarantee over substantially commonly owned depository institutions;
- limits on transactions with affiliates;
- maintenance of continuity of ownership;
- clear limits on secrecy law jurisdiction vehicles as the channel for investments;
- limitations on whether existing investors in an institution could bid on it if it failed; and
- disclosure commitments.
In applying these standards, the FDIC’s proposed policy statement includes some burdensome requirements. Of particular significance, any private equity investors would be required to agree to cause the depository institution acquiring deposit liabilities and/or assets of failed depository institution to be initially capitalized at a minimum 15% Tier 1 leverage ratio for a period of 3 years. Failure to meet this requirement would result in the institution being treated as “undercapitalized” for purposes of Prompt Corrective Action triggering the measures available to an institution’s regulator in such a situation. In addition, an insured depository institution acquired or controlled by such investors would be prohibited from providing these investors and their affiliates any extensions of credit.
While the initial proposal included these onerous burdens for interested private investors, the proposal remains open for comment (here) until August 10th. Whether such steep requirements remain in the final Statement of Policy will surely impact the number of private investors who are willing to qualify and bid on failed bank acquisitions.
Add comment July 22, 2009
The Consumer Financial Protection Agency Act of 2009 Would Substantially Curtail Federal Preemption
On June 30, 2009, Congress received from the United States Department of Treasury (“Treasury”) a 152-page piece of proposed legislation titled the “Consumer Financial Protection Agency Act of 2009″ (the “Act”). (A copy of the Act is available here.) Although most of the Act’s pages discuss to the creation of a new federal agency to regulate consumer financial products, some of its provisions aim to strip national banks and federal thrifts of the protections of federal preemption from state consumer laws.[1]
The Act defines “state consumer law” as “any law of a State that: (A) accords rights to or protects the rights of its citizens in financial transactions concerning negotiation, sales, solicitation, disclosure, terms and conditions, advice and remedies or (B) prevents counterparties, successors and assigns of financial contracts from engaging in unfair or deceptive acts and practices.”[2]
The Act then provides that “State consumer laws of general application, including any law relating to unfair or deceptive acts or practices, any consumer fraud law and repossession, foreclosure and collection law, shall apply to any national bank.”[3] (This section of the Act includes subsidiaries and affiliates within its definition of “national bank.”) The Act contains a substantially similar provision for federal thrifts.[4]
The Act even declares that state consumer protection laws are not inconsistent with federal law and thus not preempted if they afford consumers greater protection than federal law, making federal consumer protection laws the floor, not the ceiling.[5]
The Act also addresses recent Supreme Court decisions. Specifically, the Act would overturn the 2007 Supreme Court decision in Watters v. Wachovia by removing preemption protection from the subsidiaries, affiliates and agents of national banks.[6] The Act would codify the 2009 Supreme Court decision in Cuomo v. Clearing House Association by expressly authorizing state attorneys general to initiate “action[s] in any court of appropriate jurisdiction” to require federally-chartered institutions to produce records for investigations into violations of State consumer laws and to enforce any applicable federal or State law.[7] Before filing such an action, however, the Act would require an attorney general to consult with the appropriate federal regulator.
In a lone bright spot for federally-chartered financial institutions, the Act would not authorize the Consumer Financial Services Protection Agency to impose a national usury cap.[8]
[1] Section 1043 of the Proposed Consumer Financial Protection Agency Act of 2009, (as submitted by Treasury to Congress), beginning on Page 41 of the Act.
[2] Id.
[3] Id. at p.42.
[4] The provisions relating to federal thrifts, Sections 1046—48, begin on page 45 at line 18.
[5] Section 1041(2), page 38.
[6] Section 1045, page 45.
[7] Sections 1044 and 1047, pages 44 and 47—48, respectively.
[8] Section 1022(g), page 25.
Add comment July 9, 2009
FFIEC Issues Statement (i.e. Warning) on Regulatory Conversion Applications
Today, the Federal Financial Institutions Examination Council (FFIEC)[*] released a statement (the “Statement”), available here, reminding the banking community that charter conversions or changes in primary federal regulator should only be conducted for legitimate business and strategic reasons.
Judging by the Statement’s tone, the FFIEC is concerned that financial institutions are seeking charter conversions to avoid regulatory scrutiny, not for “legitimate” reasons. For example, the Statement notes that “rating downgrades and supervisory actions have become more frequent. To maintain the integrity of the regulatory system and the safety of financial institutions, it is essential that the opportunity for charter conversions does not undermine current or prospective supervisory actions.”
For charter conversion requests lodged by financial institution with “serious or material enforcement actions” pending, the Statement points out that such requests “should not be entertained.”
The Statement goes on to remind regulators of their duty to “consult with the FDIC (NCUA when appropriate), in its role as deposit insurer and receiver, and the Board, as the consolidated holding company supervisor, on any application involving an institution for which its current supervisor has either rated or proposes to rate that institution a 3, 4, or 5 . . . or has instituted or plans to institute a serious or material corrective program with respect to that institution.”
If an institution subject to an existing corrective action, the Statement points out that any ” prospective chartering authority agrees to a conversion, the FFIEC expects that corrective program’s requirements will be maintained and compliance overseen by the successor supervisor.”
Given the current economic conditions, especially in the banking community, it is unsurprising that an institution incurring harsh regulatory scrutiny would want to seek an a new regulator—if for no other reason that to gain a fresh start. The Statement suggests that any plans to change regulators will likely need to be postponed if your institution is subject to a serious enforcement action.
[*] The FFIEC’s membership is comprised of Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration (NCUA), collectively . The State Liaison Committee also joined the statement.
Add comment July 7, 2009
FDIC Issues Frequently Asked Questions to Provide Additional Guidance Regarding Sweep Account Disclosure Requirements
On July 6, 2009 the FDIC issued a list of Frequently Asked Questions (FAQs) in response to industry questions regarding sweep account disclosure requirements in 12 C.F.R. § 360.8. These FAQs can be found here in FDIC FIL-39-2009. Notably, the FAQs address the requirements for a properly executed repo sweep arrangement, such that the customer has a perfected security interest in the underlying securities upon the event of a bank failure, which is significant, because otherwise the customer’s funds could be treated as uninsured deposits.
Add comment July 7, 2009
