Bryan Cave Leighton Paisner Banking Blog

Main Content

SCOTUS Protects Lawyers Seeking Non-Judicial Foreclosures

Editor’s Note: BCLP’s consumer financial services team is a group of specialized lawyers from around the U.S., adept in state court rumbles, courthouse steps foreclosures, and bankruptcy court interludes. They are also deep thinkers in consumer law, and were waiting for this ruling today. If you have a portfolio of consumer loans and want some efficient, value-maximizing handling, give us a call. Here’s the take from Zina Gabsi, from our Miami CFS practice.

Earlier today, the U.S. Supreme Court issued its long-awaited opinion on whether law firms pursing non-judicial foreclosures are “debt collectors” as defined by the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §1692 et seq. Obduskey v. McCarthy & Holthus LLP, Case No. 17-1307 (March 20, 2019). In its ruling, the Court held that a business engaged in no more than a non-judicial foreclosure is not a debt collector under the FDCPA. (Business lawyers around the US breathed a collective sigh of relief.) Instead, the Court held that those pursuing non-judicial foreclosures are subject to the more limited FDCPA restrictions contained in section 1692f(6).

The FDCPA defines a debt collector as “any person … in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or asserted to be owed or due another.” 15 U.S.C. §1692a(6). But the statute also includes the “limited-purpose definition” which states that “[f]or the purpose of section 1692f(6) [the] term [debt collector] also includes any person … in any business the principal purpose of which is the enforcement of security interests.” Thus, the statute creates a set (debt collectors) and a subset (people that only seek to enforce security interests). The subset certainly includes “repo men,” but according to the Supreme Court, the subset also includes lawyers pursuing non-judicial foreclosures. The subset is subject to far less restrictions and mandates under the FDCPA.

The Court considered three factors in coming to its conclusion: (i) the text of the FDCPA itself; (ii) Congress’s intent; and (iii) the FDCPA’s legislative history. The Court explained that but for the limited-purpose definition (the subset), those pursuing non-judicial foreclosure would in fact be debt collectors under the additional provisions of the FDCPA. However, the Court notes that a plain reading of the limited-purpose definition, “particularly the word ‘also,’ strongly suggests that one who does no more than enforce security interests does not fall within the scope of the general definition. Otherwise why add this sentence at all?” Obduskey, at page 8. To interpret the definition of a debt collector under the FDCPA otherwise would render the addition of the “limited-purpose definition” superfluous. Id., at page 9. Furthermore, the Court posited that Congress “may well have chosen to treat security-interest enforcement differently from ordinary debt collection in order to avoid conflicts with state nonjudicial foreclosure schemes.” Id.

Of note, the Court rejected Obduskey’s argument that “McCarthy engaged in more than security-interest enforcement by sending notices that many ordinary homeowner would understand as an attempt to collect a debt backed up by the threat of foreclosure.” Id., at page 13. The Court explained that such notices were likely required under state law in order to pursue the non-judicial foreclosure and therefore the FDCPA’s “(partial) exclusion of ‘the enforcement of security interests’ must also exclude the legal means required to do so.” Id.

Justice Sotomayor wrote a concurring opinion to make two observations: “First, this is a close case, and today’s opinion does not prevent Congress from clarifying this statute if we have gotten it wrong. Second, as the Court makes clear, ‘enforcing a security interest does not grant an actor blanket immunity from the’ mandates of the FDCPA.” She interestingly noted that Congress may not have contemplated the Court’s interpretation because even though States do regulate nonjudicial foreclosures, the FDCPA was enacted “to promote consistent State action to protect consumers against debt collection abuses.”

The holding sheds light (for the moment) on the scope of the limited-purpose exception to the FDCPA’s definition of a debt collector as it relates to nonjudicial foreclosures. “[W]hether those who judicially enforce mortgages fall within the scope of the primary definition is a question we can leave for another day.” Id., at page 12. We will cover that another day too!

Read More

Georgia Supreme Court Weighs in on Director Liability

The Supreme Court of Georgia issued its latest opinion on March 13, 2019 in the continuing litigation over whether former directors and officers of the now defunct Buckhead Community Bank can be held liable for financial losses from commercial real estate loans.

The Georgia Supreme Court had previously advised a Georgia federal court, where the case was filed by the FDIC, that the directors and officers of the bank could be held liable if they were negligent in the process by which they carried out their duties. Following that opinion, rendered in 2014, the case returned to federal court, and a trial was ultimately held in 2016. In that trial, the jury concluded that some of the directors and officers were negligent in approving some loans and awarded the FDIC $4,986,993 in damages.

The trial judge in the case found that the defendants were “jointly and severally liable” for the award, meaning that the entire verdict could be collected from any one of the defendants. The defendants appealed contending that joint and several liability had been abolished by the General Assembly in 2005. The defendants also argued that the trial court should have given the jury the opportunity to apportion the damages among each of the defendants according to their respective degrees of fault. In considering the appeal, the United States Court of Appeals for the Eleventh Circuit again sought direction from the Supreme Court of Georgia on this new issue of law.

On Wednesday, in a 39-page opinion, the Georgia Supreme Court responded, providing answers to some, but not all, of the questions raised by the Eleventh Circuit. The Georgia Supreme Court held that joint and several liability can still be imposed in Georgia on defendants “who act in concert insofar as a claim of concerted action involves the narrow and traditional common-law doctrine of concerted action based on a legal theory of mutual agency and thus imputed fault.” The Supreme Court indicated that this was a very narrow exception to the usual rule that damages must apportioned among defendants.

Read More

In Memoriam: Walter G. Moeling, IV, 1943-2019

March 7, 2019

Categories

It is with a very heavy heart that I write to report that our longtime friend and retired Partner, Walt Moeling, passed away peacefully on Monday night. Walt was at home and surrounded by family, including his wife Nell who has become a friend to many throughout the firm. Nell was Walt’s lifelong best friend and true companion, and is almost as well-known as Walt within the banking community in the Southeast for always being by his side and helping to grow his practice. Walt was important to our group, to the firm and to every person whose path he crossed. He was an incredible mentor to many, including our entire banking team.

Walt spent his entire legal career with our firm, starting out in the late 1960s with Powell Goldstein, an Atlanta-based firm that merged with Bryan Cave in 2009. In Walt’s near 50 years of active practice, he represented banks, thrifts, insurance companies and securities firms nationwide. In recent years he was nicknamed “the Godfather of Banking in the South” by a very prominent banking industry commentator.

Walt was widely recognized for his accomplishments as a leader in the legal field and banking industry and appeared in Who’s Who in America, in the South; American Law; Business and Finance; and as one of America’s Leading Business Lawyers by Chambers and Partners.

Read More

On the BB&T/SunTrust Merger…

On the BB&T/SunTrust Merger…

February 7, 2019

Authored by: Jonathan Hightower

Many of us who are native Southerners sat with mouths agape as we read the announcement of the $66 billion (!) all-stock merger of equals between super regional banks BB&T and SunTrust. Few of us who grew up in Georgia have not been personally impacted by these banks in some way or another. For me, my aunt worked at Trust Company Bank when I was a kid, and BB&T bought a local thrift (Carrollton Federal), making its way into our home market where it remains today. After college, law school barely beat out an offer to work in SunTrust’s commercial lending training program, and BB&T currently holds the mortgage on my home. With all of those ties, I feel somewhat nostalgic when reading that the bank will be rebranded as a part of the merger.

With that said, the real time business implications for all of us are even larger. The day before the merger, my friend Jeff Davis wrote a smart piece ($) detailing the virtues of merger of equals transactions in today’s world. BB&T recently discussed on its earnings call that it was accelerating cost savings initiatives in order to invest more in its digital offerings. With the announced merger, one can assume that the lab for digital innovation of the combined bank (to be based in Charlotte, a bit of a disappointment to the Atlanta community) will make a massive effort to transform the banking experience of the bank’s customers, a truly meaningful segment of the market. We have recently commented that the transformation of the Atlanta banking market is now a reality, and this combination promises to further evolve how many banking customers think of and interact with their banks.

Read More

Lender’s Non-Liability for a Servicer’s RESPA Violation

February 7, 2019

Categories

In a first, a federal circuit court rules a lender cannot be held liable for a servicer’s RESPA violation.

A borrower who took out a home equity loan from Bank of America alleged the Bank is vicariously liable for the failure of its loan servicer to comply with the Real Estate Settlement Procedures Act (RESPA), particularly 12 C. F. R. § 1024.41(c)(1). That regulation imposes duties on servicers who receive a complete loss mitigation application more than 37 days before a foreclosure sale to–within 30 days of receipt–evaluate the borrower for all loss mitigation options available to the borrower and provide the borrower with a notice stating which options, if any, it will offer the borrower.

The Fifth Circuit, which is apparently the first circuit to address the issue, held banks cannot be held vicariously liable for the alleged RESPA violations of servicers. Christiana Trust v. Riddle, — F. 3d — (2018) (2018 WL 6715882, 12/21/18). The Court had three related reasons.

First, “[b]y its plain terms the regulation at issue here imposes duties only on servicers” as it states a “servicer shall.” 12 C. F. R. § 1024.41(c)(1)

Read More

2019 Fintech Legal and Regulatory Discussion

You’re Invited – Join the Atlanta Chapter of the BayPay Forum on February 19 for a 2019 Fintech Legal and Regulatory Panel Discussion

On Tuesday, February 19, from 6-8:30 pm, the Atlanta chapter of the BayPay Forum will meet at Bryan Cave Leighton Paisner’s offices in Midtown Atlanta for a networking reception and panel discussion on the state of fintech regulation.

Start 2019 on solid footing with an engaging panel discussion reflecting on regulatory responses to faster payments, open banking/APIs, blockchain applications and ICOs, and other innovations.  Panelists will include Dick Fraher, Vice President and Counsel to the Retail Payments Office at Federal Reserve Bank of Atlanta; C. Ryan Germany, General Counsel and Assistant Commissioner of Securities & Charities, Office of Georgia Secretary of State Brad Raffensperger; Ben Robey, BSA/AML Compliance Specialist at MSB Compliance, Inc.; and Ken Achenbach, Partner at Bryan Cave Leighton Paisner.  The panel will be moderated by Barry Hester, Counsel at Bryan Cave Leighton Paisner.  Details and free registration are available here using the passcode BRYANCAVE. 

Participants will take away product and service design implications and a better understanding of the consumer protection, safety and soundness, jurisdictional, other policy issues at play.  Discussion will address, among other issues:

Read More

Roleplaying as Chief Strategy Officers

On January 25th, Jonathan and I returned to the studio to record the latest podcast for The Bank Account. We’re trying to live up to our commitment to podcast more often in 2019 then we did in 2018; nothing like setting a low bar!

We first briefly discuss the latest IRS regulations for the taxation of Subchapter S banks and the reactions that we’ve seen from our clients on tax reform. Generalization appears virtually impossible, as we’ve seen reactions ranging from terminating Subchapter S elections, doing transactions and forgoing Subchapter S elections, sticking with the status quo, and, as Jonathan puts it, “Sub S or Die.”

We then turn to a hypothetical scenario that both Jonathan and I think about from time to time; what if we decided to cease providing legal services and instead attempted to become bank officers. What would our first steps be as a new Chief Strategy Officer of a hypothetical depository institution. Jonathan suggests beginning with the question of whether the institution is a true “community bank,” with a provocative definition for the term. Per Jonathan, a “community bank” is one whose existence is self-justified, as an irreplaceable benefit to the community it serves. (Jonathan than proceeds with an approach that even he admits might be better suited for a visual presentation.)

I suggest instead that the first question should be what is expected/desired by the institution’s shareholders. Depending on the shareholder base and their expectations for the institution, different strategic approaches are called for.

Please click to subscribe to the feed on iTunes, Android, Email or MyCast. It is also now available in the iTunes and Google Play searchable podcast directories.

Read More

Volcker Rule Impact When Crossing $10 Billion

Under the Economic Growth, Regulatory Reform and Consumer Protection Act, depository institutions and their holding companies with less than $10 billion in assets are excluded from the prohibitions of the Volcker Rule. Accordingly, institutions under $10 billion may, so long as consistent with general safety and soundness concerns, engage once again in proprietary trading and in making investments in covered funds.

On December 21, 2018, the federal regulatory agencies proposed rules implementing this EGRRCPA provision. However, as previously noted, even pending finalization of these regulations, the regulatory agencies have also noted that they will not enforce the Volcker Rule in a manner inconsistent with EGRRCPA.

EGRRCPA, and the proposed rule, effect the exclusion of smaller institutions from the Volcker Rule by modifying the scope of the term “banking entity” for purposes of the Volcker Rule. The proposed rule excludes from being a “banking entity” any institution that has (i) $10 billion or less in assets and (ii) trading assets of 5% or less.

Neither EGRRCPA nor the proposed rule, however, addresses the impact on an institution when it goes over $10 billion in assets, either as a result of organic growth or via merger. The proposed rule does not even apply the tests on a quarter-end or other reporting period basis, much less an average balance or consecutive quarter requirement. The proposing release notes that they believe that insured depository institutions “regularly monitor their total consolidated assets” for other purposes, and therefore do not believe this ongoing test requirement would impose any new burden.

Read More

Did Congress Release Nearly All Banks from the Volcker Rule?

Yes.  

The Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) provided significant regulatory relief for community banks, including broad relief from the Volcker Rule’s prohibition on proprietary trading and investments in covered funds. As previously discussed, Section 203 of EGRRCPA provided an exemption from the Volcker Rule for institutions that are less than $10 billion and whose total trading assets and liabilities are not more than 5% of total consolidated assets. The exemption provides complete relief from the Volcker Rule by exempting such depository institutions from the definition of “banking entity” for purposes of the Volcker Rule.

On December 21, 2018, the financial regulatory agencies invited public comments on a proposal to implement the EGRRCPA changes to the Volcker Rule. The proposed rule provides that an insured depository institution is exempt from the Volcker Rule if “it has, and every company that controls it has, total consolidated assets of $10 billion or less and total trading assets and trading liabilities, on a consolidated basis, that are 5% or less of total consolidated assets.” While the proposed rule is not yet effective, the Federal Reserve has previously confirmed that it would not enforce the Volcker Rule in a manner inconsistent with EGRRCPA, so the proposed rule is effectively already in place.

Based on September 30, 2018 call report data, this change to the Volcker Rule exempted approximately 97.5% of the 5,486 U.S. depository institutions. (The actual number is probably slightly less, as some of those exempted depository institutions are affiliated with larger and/or foreign banks, each of which would remain subject to the Volcker Rule.) Of note, the $10 billion asset threshold is by far the most relevant determinant of the eligible relief. Based on that call report data (which necessarily excludes any trading assets and liabilities held by a parent company), only 0.15% of depository institutions had trading assets equal to at least 5% of their total assets (and only 0.16% of the institutions had trading assets equal to 3% or more of their total assets).

While few community banks ever engaged in proprietary trading before the Volcker Rule, EGRRCPA still provides meaningful relief from the compliance obligations of the Volcker Rule, the risk of inadvertently being deemed to engage in proprietary trading, or the prohibition from investing in covered funds (or the need to ensure that vehicles that were invested in qualified for an exemption from the covered fund definition).

Read More

Statute of Limitations on Reverse Mortgages

January 8, 2019

Categories

In Hayes v. Reverse Mortgage Solutions, Inc., No. 3D17-1603 (Fla. 3d DCA Nov. 21, 2018), a case of first impression, the Florida Third District Court of Appeals considered whether the statute of limitations for enforcing reverse mortgage loans begins on the date the note matures or upon the death of the borrower.

Defendant contended that the foreclosure action, filed in 2014, was time-barred by the Florida statute of limitation because the cause of action accrued on the date the borrower died in 2008, or alternatively, upon the mortgagee’s acceleration of the reverse mortgage when a prior foreclosure action was filed in 2009. Finding that the language in the reverse mortgage at issue (“[l]ender may require immediate payment in full of all sums secured by this Security Instrument if: (i) A Borrower dies …”) confers upon the mortgagee the right, but not the obligation, to accelerate payment of the debt, the Court held acceleration of the debt based on the death of the borrower is optional and therefore does not automatically amount to accrual of the cause for purposes of the statute of limitations.

Read More
The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.