Archive for April, 2011
Ingram’s Reviews Changing Kansas City-Area Bank Market
The changing Kansas City-area bank market is examined in a recent Ingram’s magazine article Change? Bank On It (Available here). Mike Lochmann, an attorney with the Stinson Morrison Hecker LLP Banking and Financial Services Division, was interviewed for his perspective of the changing bank landscape.
Revised Final CARD Act Rules: The End of “Household Income” and Other Changes
On March 18, 2011, the Federal Reserve Board (FRB) issued revised final rules (the Final Rules) to clarify recent amendments to Regulation Z pursuant to the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act). The mandatory compliance date is October 1, 2011, although issuers may voluntarily comply with the Final Rules prior to this date. The Final Rules are available here.
The Final Rules contain numerous revisions and clarifications, but perhaps the most controversial is the clarification regarding an issuer’s assessment of a consumer’s ability to repay his or her credit card obligations prior to opening a new account or increasing the credit line on an existing account. Issuers have traditionally requested information regarding “household income” on applications and used this information to determine a consumer’s ability to pay; however, the Final Rules clarify that an issuer must consider a consumer’s “independent ability” to repay. While this standard has long been used for consumers under the age of 21, until now, it has never been applied to consideration of household income for persons over the age of 21. The Final Rules do not prohibit an issuer from asking for household income, but do provide that an issuer may not rely on household income to determine a consumer’s ability to pay.
Specifically, the Final Rules provide: “Consideration of information regarding a consumer’s household income does not by itself satisfy the requirement in § 226.51(a) to consider the consumer’s independent ability to pay. For example, if a card issuer requests on its application forms that applicants provide their “household income,” the card issuer may not rely solely on the information provided by applicants to satisfy the requirements of § 226.51(a). Instead, the card issuer would need to obtain additional information about an applicant’s independent income (such as by contacting the applicant). However, if a card issuer requests on its application forms that applicants provide their income without reference to household income (such as by requesting “income” or “salary”), the card issuer may rely on the information provided by applicants to satisfy the requirements of § 226.51(a).”
The Final Rules also clarify numerous other provisions of the CARD Act, including:
- The applicability of the CARD Act to account numbers that access a line of credit;
- Assessment of penalty fees;
- Revocation of waived interest charges for promotional programs;
- Applicability of fee limits to application fees and other pre-account opening fees;
- Temporary rate and fee reductions;
- Rate Re-Evaluations;
- Check Disclosures; and
- Conforming and Nonconforming Payments
For more information on the legal compliance issues currently facing the financial services industry, please call one of our Banking & Financial Services attorneys.
Proposed Ability-To-Repay Rules For Consumer Mortgages
New rules have been proposed for creditors under Regulation Z that, if implemented, would require creditors to determine a consumer’s ability to repay a mortgage before making the loan and would establish minimum mortgage underwriting standards. The proposal provides four options for complying with the ability-to-repay requirement. In addition, the proposal also implements the limits on prepayment penalties set out in the Dodd-Frank Act and lengthens the time creditors must retain records that evidence compliance with the ability-to-repay and prepayment penalty provisions.
The Federal Reserve Board has requested public comment until July 22, 2011 on the proposed rules that will ultimately be finalized by the new Consumer Financial Protection Bureau.
Highlights of the Proposed Ability-To-Repay Rules from the Federal Reserve are available here.
The Federal Reserve Press Release regarding the Proposed Rules is available here.
The Notice of the Proposed Rule is available here.
Karen Garrett Featured Panelist at Regulatory Compliance and Risk Management for Financial Services Forum
Stinson attorney Karen Garrett, a partner in the Banking and Financial Institutions Division, will be a featured panelist at American Conference Institute’s Forum on Regulatory Compliance and Risk Management for Financial Services taking place May 5-6 in New York City.
The conference aims to address major compliance and risk requirements to meet stepped up regulatory and reporting obligations. Garrett is a featured panelist at a pre-conference workshop, “Credit Cards and Debit Cards: Demystifying New Regulations and Reforms,” on May 4, as well as a panelist for a breakout session addressing the new wave of consolidation among financial institutions on Friday, May 6. Other scheduled speakers and panelists include federal and state government regulators and in-house professionals who will address current compliance and risk management matters associated with new regulations and landmark legislation.
In light of the ongoing financial reform, the financial industry’s compliance function is facing an influx of change, including the creation of new regulators, the regulation of new markets, the bringing of new firms into the regulatory arena, and the provision of new rulemaking and enforcement powers to regulators. This has resulted in a complete revamp of each affected company’s compliance program. Financial institutions need to be increasingly vigilant to ensure their compliance controls are in place and implemented in a way to conform to the regulations and landmark legislation.
Garrett has significant experience representing financial institutions and boards of directors in compliance and risk management matters relating to product development, operations, card products, payments systems and other services. She also has worked on behalf of financial institutions with state and federal regulators on many matters, from acquisitions and mergers to failed bank transactions to issues involving the limits of banking powers.
For more information on the forum, visit American Conference Institute’s website.
Treasury Turns a Profit on TARP
Last week, the United States Department of the Treasury announced that TARP has returned approximately $6 billion dollars to taxpayers. Over the last few years, Treasury invested $245 billion of TARP funds into the banking system. As of March 30, 2011, Treasury has recovered $251 billion. Treasury estimates that over the life of the TARP program, U.S. taxpayers will receive approximately $20 billion in profit.
So much for the so-called “bailout.”
Click here to read the Treasury’s announcement.
Loan Originator Compensation Rule Delayed
The United States Court of Appeals for the District of Columbia has stayed the implementation of certain amendments to Reg. Z outlining compensation rules for mortgage loan originators. The final rule was supposed to go into effect today, April 1, 2011. The final rule prohibits payments to mortgage loan originators (including brokers and loan officers) based on the terms or conditions of the loan other than the amount of the loan.
The Court of Appeals is taking expedited action and is expected to schedule a hearing and make a ruling in short order.
APRIL 5 UPDATE: The Court of Appeals ruled that the National Association of Mortgage Brokers and National Association of Independent Housing Professionals had not “satisfied the stringent standards required for a stay pending appeal,” and dissolved its administrative stay of the rule. The new loan originator compensation rules go into effect immediately. We do note that while the Court of Appeals lifted the stay, the case brought by the NAMB and NAIHP will continue through the appellate process.
