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.
Judge Declares Missouri Law Unconstitutional
Stinson Filed Suit Challenging Law on behalf of Missouri Bank
Cole County Circuit Judge Daniel R. Green ruled today that a Missouri campaign finance law is unconstitutional. Stinson Morrison Hecker LLP attorneys Chuck Hatfield and Khris Heisinger filed a lawsuit Dec. 6, 2010 on behalf of Legends Bank and its president, John Klebba, who is also chairman of the Missouri Bankers Association, to block Missouri Senate Bill 844. The suit claimed the law was invalid based on violation of the State’s Constitution requirement requiring that a piece of legislation contain only one subject (known as Hammerschmidt challenges) as well as violations of free speech and free association.
In the ruling, Judge Green said the bill “contains matters that do not fairly relate to ethics, have a natural connection to ethics or are a means to accomplish the law’s purpose as enacted.” Judge Green also struck the provision preventing state-chartered banks from contributing to political action committees, which he said violated banks’ First Amendment rights. The enforcement of all provisions except those dealing with purchasing, the original purpose of the bill, were also halted.
Stinson’s lawsuit sought to invalidate the law based on a “Hammerschmidt” challenge. The state constitution prohibits bills from containing multiple subjects and from departing too far from the original purpose of the bill. Those constitutional provisions are designed to ensure that changes to the law are thoroughly debated and to prevent “logrolling” where popular provisions of law are grouped together with unpopular provisions limiting the options of law makers to vote on each one separately. SB 844 started out in the General Assembly as a one page procurement bill that allowed elected officials to seek advice on the purchasing of services. At its passage, it had ballooned to 69 pages and now contained the procurement provisions, revisions to campaign finance law, a provision governing who has access to the Capitol dome, provisions regulating lobbyists and other sections relating to investigations by the Ethics Commission.
“The law prevented banks from participating in the political process, and it placed an unreasonable restriction on speech and freedom of association,” said Hatfield, who serves as chair of Stinson’s Government Solutions Practice and as the managing partner for the firm’s Jefferson City, Mo., office. “Judge Green’s ruling was spot on and acknowledged that the legislature must follow Constitutional requirements when enacting legislation.”
It’s unclear what the immediate impact of this decision will be. However, we encourage our clients to remain cautious because we anticipate that this case will end up in the Missouri Supreme Court.
If you have questions regarding the implications of this ruling, please contact a member of Stinson Morrison Hecker’s Government Solutions Group.
Condominium-Unit Financing
Special Thanks to Hal Tzinberg in our Real Estate Group for preparing the following article, which we at BankinBits think will be useful information for your bank. Give us a call if you would like more information about new rules and requirements of condo financing.
Since the mortgage meltdown and being confronted with numerous loans on units in partially completed condominiums, the United States Department of Housing and Urban Development, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (the “Agencies”) adopted new rules which have had the practical effect of requiring many existing condominiums to amend their Declarations and By-Laws, so their unit owners and prospective unit purchasers can refinance or procure financing to purchase their units. Some of the changes include the following:
- At least 10% of the Condominium Association’s annual budget must be allocated to funding replacement reserves for capital expenditures and deferred maintenance, and the budget must provide funding for any deductible payable under the Association’s property and liability insurance policies.
- Eligible First Mortgage Lenders (“Lenders”) must be given notice of, and at least 51% of the Lenders holding mortgages on units in the condominium must approve, any “Material Amendment” to the Condominium Declaration or Plat or the By-Laws of the Condominium Association, and the approval of Lenders holding mortgages encumbering units to which at least 67% of the allocated interests are assigned is required for certain other actions. The Declaration must incorporate the Agencies’ insurance guidelines.
- Although rights of first refusal are permitted, provided they do not violate the Fair Housing Act, the Declaration must exempt Lenders from any requirement to first offer to the Association units they acquire in the exercise of their remedies. Further, any Lender who obtains title to a condominium unit through foreclosure will not be liable for more than 6 months of the unit’s unpaid regularly budgeted dues or charges incurred before acquisition.
In addition to documentary compliance, the following are conditions precedent to the Agencies’ approval of a condominium project:
- No more than 10% of the units may be owned by one investor. For projects with 10 or fewer units, no single entity may own more than 1 unit.
- All units, common elements and facilities within the project must be 100% complete.
- No more than 15% of the total units can be more than 30 days past due in payment of their condominium association fees.
- At least 50% of the units must be owner-occupied or sold to owners who intend to occupy the units.
Additional rules apply to projects under development.
If you are contemplating purchasing or refinancing a condominium and would like us to review the project documents, please contact a member of Stinson Morrison Hecker LLP’s Real Estate Group.
New ATM Accessibility Standards
Are your ATMs ADA compliant? The United States Department of Justice recently issued new regulations under the Americans with Disabilities Act (“ADA”) relating to ATM accessibility. The new regulations became effective on March 15, 2011, but compliance with the new regulations will be phased into effect over the next 12 months. Your financial institution should be familiar with the new regulations to determine whether you need to take action to update your ATMs.
What do the new regulations require?
The new regulations require voice guidance capabilities for the visually-impaired and physical accessibility requirements for all disabled users. The physical accessibility standards include height and reach requirements, display screen visibility requirements, function keys must contrast visually, Braille instructions to initiate voice guidance feature, and input controls must be discernable by touch. Depending on your particular machine, the required changes may be as simple as a software update, or as extensive as a total machine replacement.
Who’s covered by the regulation?
Under the ADA, “covered entities” include places of public accommodation or commercial facilities such as financial institutions, hotels, restaurants, hospitals, grocery stores, retail stores, etc.
Timeframe for compliance.
What is required as of March 15, 2011?
As of March 15, 2011, all existing ATMs should comply with the 1991 regulations and be equipped with a voice guidance system for visually-impaired users unless compliance creates an “undue burden” on the financial institution. Proving an “undue burden” is subjective and determined on a case-by-case basis. The factors include the overall resources of the financial institution or the institution’s holding company, (ii) the cost of upgrades, and (iii) availability of alternatives to serve the disabled. Additionally, ATMs need only comply with the physical access requirements if they did not comply with the 1991 Standards, and if it is readily achievable to do so. “Readily achievable” means easily accomplishable with little expense or effort. Finally, any newly-installed ATMs must at least comply with the 1991 regulations and be equipped with voice guidance capabilities. Moreover, as of March 15, 2011, the ADA requires that all covered entities institute a compliance plan for eventually achieving ATM accessibility as required under the new regulations.
What is required between March 15, 2011 and March 15, 2012?
For existing ATMs that comply with the 1991 regulations and have voice guidance capabilities, no further compliance is necessary unless an alteration is made to the machine. When an alteration is made, the alteration must comply with the 2010 regulations. “Alternations” include renovations, rehabilitation, and reconstruction but do not include normal maintenance. All new ATM installations have the option of complying with the new 2010 regulations or the 1991 regulations plus the voice guidance features.
What is required after March 15, 2012?
After this date, all newly-installed ATMs must comply with the new 2010 regulations. All existing ATMs that comply with the 1991 regulations and have voice guidance capabilities require no further compliance until the machine is altered or replaced. When the machine is altered or replaced, the alteration or replacement must comply with the 2010 regulations.
What should I do?
• Contact your compliance officer/legal counsel to assist in the interpretation of the new regulations and to help assess whether your ATMs are compliant with the new regulations.
• Contact your ATM vendor to determine whether your ATMs need an upgrade and the cost of such upgrade.
• Using the information from your vendor, you should establish and institute a compliance plan for achieving ATM accessibility under the 2010 Standards.
Click here to view a full text of the new regulations.
Please Join Us For A Banking Seminar On April 8th (Omaha, Nebraska)
The banking and financial services industry has been under a hail storm of significant regulatory reform and change. Amidst all this change, a major revision to Article 9 of the Uniform Commercial Code has recently been introduced in the Nebraska Unicameral. In addition, recent case law along with provisions of the Dodd-Frank Act have thrown into doubt the enforceability of consumer arbitration clauses and class action waivers.
Please join us on Friday, April 8, when we will address these topics as well as:
- Key payment systems issues for banks, including treasury management products and corporate takeovers
- Rights of secured parties against garnishing judgment creditors with respect to deposit accounts and banks’ set off rights
- Recent bankruptcy decisions on preference and fraudulent transfer issues
- Avoiding key secured loan documentation pitfalls
Is someone else in your organization interested in attending?
forward the invitation
If you are unable to attend the seminar, but would like to receive a copy of the handouts, please click here.
RSVP
Please respond by Friday, April 1, via
e-mail or call us at 402.930.1722.
WHEN
Friday, April 8
7:30 a.m.
Registration and Continental Breakfast
8 a.m. Program
11 a.m. Q&A
WHERE
Magnolia Hotel
1615 Howard Street
Omaha, NE 68102
directions
The Magnolia Hotel will provide free valet parking for seminar attendees.
Is someone else in your organization interested in attending?
forward the invitation
If you are unable to attend the seminar, but would like to receive a copy of the handouts, please click here.
For more information, please e-mail Jim Pfeffer or call him at 402-930-1735.
