Bryan Cave Leighton Paisner Banking Blog

Main Content

The Plain Meaning of RESPA Regulations

If I should call a sheep’s tail a leg, how many legs would it have?

According to Abe Lincoln, “only four, for my calling the tail a leg would not make it so.” So begins the Eleventh Circuit’s opinion holding the motion to reschedule a foreclosure sale was not a motion for an order of sale within the meaning of the RESPA regulation governing loss-mitigation procedures.

The language of 12 C.F.R. 1024.1(g) prohibits a loan servicer from moving for an order of foreclosure sale after a borrower has submitted a complete loss-mitigation plan. Under the plain language of the regulation, a motion to reschedule a previously ordered foreclosure sale is no more a motion for an order of sale than a sheep’s tail is a leg!

This conclusion is reinforced by the construction canon favored by Justice Scalia, known as the “associated word cannon” in English, but more commonly referred to by learned colleagues as the “noscitur a sociis canon.” (Thank god for high school Latin helping me pass the bar!)

Read More

The Risks of Assembling Consumer Information

In a case of first impression in its circuit, the Second Circuit held that a business may not be liable under the Fair Credit Reporting Act (FCRA) for publishing false information unless it specifically intended the report to be a “consumer report.” Kidd v. Thompson Reuters, —F.3d — (2019 WL 2292190, 5/30/19). It then held that  defendant Thompson Reuters established it did not have the requisite specific intent by showing that at each step in its processes it instructed its users and potential subscribers that its platform was not to be used for FCRA purposes, such as employment eligibility–but only for the non-FCRA purposes of law enforcement, fraud prevention and identity verification–and required them to affirm their understanding of that restriction. Accordingly, the Second Circuit Court of Appeals affirmed the granting of summary judgment to Thompson Reuters, even though its subscriber had used its inaccurate report to determine a job applicant’s employment eligibility.

The take-away: If your business regularly assembles consumer information, distributes it to third parties, and fears it may be used for a FCRA-related end that is not intended, your business should forbid such uses in its subscriber contract, monitor the actual uses of that information, and take adequate measures to stop FCRA-related uses when it learns of them.  

Read More

Promoting Corporate Social Responsibility Through Lending

Financial institutions continue to develop products to encourage Corporate Social Responsibility (CSR) goals. The Loan Market Association has recently published Sustainability Linked Loan Principles to guide the use of loan instrument terms to promote the achievement of the borrower’s sustainability goals. As with disclosure and measurement associated with corporate disclosures intended to appeal to socially responsible investors, the success of such Sustainability Linked Loans in promoting better sustainability performance will largely depend on the borrower’s ability to set ambitious but realistic goals that are measurable and verifiable by third parties. 

Companies who have a deep and thorough understanding of their products life cycle (from all the raw material inputs through the end of the products useful life with the customer) will have the best chance of working with their lender to design sustainability performance targets that will actually move the needle.  As more of these loans are created, it will then be interesting to see how financial institutions report to their investors on how these lending products are improving the sustainability of their loan portfolios. 

Read More

Bank Directors Should Not Personally Approve Loans

This image has an empty alt attribute; its file name is admin-ajax-300x298.jpg

Partners Jim McAlpin and Ken Achenbach joined me in the podcast studio to discuss the common community bank practice of having boards of directors approve particular loans.

While our initial approach was going to be to engage in a debate on the merits of this practice, none of us ultimately wanted to take the side of justifying the practice; for different reasons, many of which are expressed on the podcast, we all believe that it is a bad idea for bank directors to personally approve loans.

This spark that started this podcast was the recent BankDirector piece titled “77 Percent of Bank Boards Approve Loans. Is That a Mistake?” As I’ve written previously on BankBCLP.com, bank directors should not be approving individual loans, and banks should not be asking their directors to approve individual loans.

In addition to the podcast and the blog post, we also have a white paper titled Why Your Board Should Stop Approving Individual Loans.  That white paper analyzes what the board’s role should be in overseeing the bank, and why approving individual loans threatens this oversight. If boards keep approving loans, we’re next going to have to look into how to address our concerns via Instagram, courrier pigeon, or smoke signals.

During the podcast, I also mention our efforts to make the FDIC “podcast” on the financial crisis more accessible.

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

FDIC “Podcast” on the Financial and Banking Crisis

In December 2017, the FDIC published a written history of the financial crisis focusing on the agency’s response and lessons learned from its experience. Crisis and Response: An FDIC History, 2008–2013 reviews the experience of the FDIC during a period in which the agency was confronted with two interconnected and overlapping crises—first, the financial crisis in 2008 and 2009, and second, a banking crisis that began in 2008 and continued until 2013. The history examines the FDIC’s response, contributes to an understanding of what occurred, and shares lessons from the agency’s experience.

In April 2019, the FDIC followed up on the written summary with a “podcast” covering the same. While I am a huge fan of podcasts, as at least partially reflected in hosting The Bank Account, one of my pet peeves is when someone calls an audio download a podcast, without providing any convenient way to download that audio to a podcast application so that it can easily be listened to in the car, at the gym, or on a walk.

(Full disclosure: I listen to most podcasts, including banking podcasts, while running.  I certainly can’t say that discussions of banking law motivate me to run any faster or farther, but I do at least listen to them at 1.5x speed.)

Rather than just complain (or ignore it), I decided to take action and created an rss feed for the FDIC’s podcast. Anyone should now be able to paste/enter https://bankbclp.com/fdic-podcast.xml into their podcast app of choice to subscribe to the FDIC’s Crisis and Response podcast. I’ve also published additional instructions on how to subscribe to the FDIC podcast with particular podcast applications.

Read More

77 Percent of Bank Boards Commit this Mistake

Last week, Bank Director published a piece titled “77 Percent of Bank Boards Approve Loans. Is That a Mistake?”

In case you didn’t get it from the title of this blog post, I think the answer is absolutely, 100 percent, yes! Bank Directors should not be approving individual loans, and Banks should not be asking their Directors to approve individual loans.

77 percent of executives and directors say their board or a board-level loan committee plays a role in approving credits, according to Bank Director’s 2019 Risk Survey. And Boards of smaller banks are even more likely to be involved in the loan approval process. According to the survey, almost three quarters of banks over $10 billion in assets do not have their directors approve loans, but over 80% of banks under $10 billion in assets continue to have board-approval of certain loans.

These survey results generally conform to our experience. Two weeks ago, Jim McAlpin and I had the pleasure of leading five peer group exchanges on corporate governance at the 2019 Bank Director Bank Board Training Forum. The issue of board approval of loans came up in multiple peer groups, but the reaction and dialogue were radically different based on the size of the institutions involved. In our peer group exchange involving the chairmen and lead directors of larger public institutions, one of the chairman phrased the topic along the lines of “is anyone still having their directors approve individual loans?” Not one director indicated that they continued to do so, and several agreed that having directors vote on loans was a bad practice.

A few hours later, we were leading a peer group exchange of the chairman and lead directors of smaller private institutions. Again, one participant raised the issue. This time the issue was raised in an open manner, with a chairman indicating that they’d heard from various professionals that they should reconsider the practice but so far their board was still asking for approval of individual loans. A majority of the directors in attendance indicated concurrence.

Read More

Borrower’s Death Does NOT Automatically Accelerate a Reverse Mortgage

Does the death of the borrower automatically accelerate a reverse mortgage? In a decision that is good news for reverse mortgage lenders, a recent New York appellate court answered no. In Mortgage Solutions v. Fattizzo, _ AD3d_, (2d Dep’t, May 1, 2019), the New York Supreme Court, Appellate Division, Second Department, considered whether the statute of limitations for enforcing reverse mortgage loans begins to run upon the death of the borrower. Defendant contended that the foreclosure action, filed August 6, 2014, was time-barred by the six year New York Statute of Limitations because the cause of action accrued on the date the borrower died, February 19, 2008.

The Court focused on the language in the reverse mortgage at issue – “[l]ender may require immediate payment in full of all outstanding principal and accrued interest if …” (emphasis added) – and noted that it confers upon the holder of the note and mortgage the option, but not the obligation, to accelerate payment of the debt. The Court held that an affirmative act by the lender was needed to accelerate the debt.

Accordingly, in New York, absent different language in the mortgage, the death of the borrower does not automatically amount to accrual of a cause of action for purposes of the statute of limitations. This is a departure from prior New York case law, although the same conclusion recently reached under Florida law.

Read More

The Misconceptions of Private Bank M&A

Last week, Kevin Strachan joined me in the podcast studio to discuss the ability of privately held banks to use their securities as consideration to acquire another institution.

Sadly, since the last time we recorded a podcast, the patriarch of our banking practice, Walt Moeling, passed away.  Our previously posted memorial included several links to remember Walt, but of particular relatedness to the podcast, we encourage everyone to listen again to two earlier podcasts with Walt sharing his wisdom.  In December 2016, Walt joined us on the podcast to discuss, among other things, the future of the banking industry and what one regulatory change he would make if given unlimited power. Then, in March 2017, Walt spoke about establishing a sustainable sales culture.

Somehow, I was able to read the notes I had scribbled about Walt, and we then continued to discuss two common (and contradictory) misconceptions on private company merger and acquisition activity. 

The first misconception is that privately held companies can’t issue stock as merger consideration.  The second misconception is that privately held companies can issue stock without restriction as merger consideration.  We regularly hear both of these misconceptions when advising private companies on a potential merger transaction where they are looking to issue (or receive) private company stock.  While neither of these ideas are correct, the truth is messy and usually requires further discussion.

Among the topics covered with Kevin in this episode of The Bank Account are:

  • the additional flexibility of banks without holding companies (and the limitations of that flexibility);
  • SEC registration via merger;
  • Regulation A+ in mergers;
  • the state Fairness Hearing exemption; and
  • using Rule 506 of Regulation D to issue securities to the target shareholders.

For private companies considering an acquisition of another institution, further conversations with investment bankers and lawyers are almost certainly going to be needed, but this episode of The Bank Account can give you a head start in understanding some of the potential options that may be out there.

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

Georgia Noncompete Law Remains Enforceable

In light of the continued merger activity within the state, including the blockbuster SunTrust/BB&T merger, we’ve seen a renewed focus on the enforceability of non-compete provisions – from banks looking to hire, from banks hoping to retain, and bank employees considering a change.

Image by Mohamed Hassan from Pixabay

Apparently, we’re not alone. On May 1, 2019, the American Banker published a story titled “What ruling on non-compete clauses means for banks — and job hunters.” The article looks at the potential impact of the the Georgia Court of Appeals’s decision in Blair v. Pantera Enters., Inc. (2019 Ga. App. LEXIS 114). Among other things, the article posits that “if BB&T and SunTrust want to enforce non-compete agreements with all their loan officers and wealth management experts stationed in Georgia, some of those contract provisions might not pass legal muster, according to legal experts.” While the enforceability of non-compete agreements is always subject to legal uncertainty, with the specific facts at play and the trial judge potentially playing a significant role, we think this vastly overstates the impact of Blair v. Pantera, particularly in the bank context.

Blair v. Pantera involved the enforceability of a non-compete provision against a backhoe operator. The court found, correctly and consistently with the Georgia Restrictive Covenants Act (O.C.G.A. § 13-8-50 et seq.), that he was not an employee under the statute against whom a non-compete could be enforced. Under the Georgia Restrictive Covenants Act, non-competes may generally only be enforced against employees that: manage the business, regularly direct the work of two or more other employees, can hire or fire other employees, are regularly engaged in the solicitation of customers or with making sales or taking orders, or meet the definition of a “key employee” under the statute. Under the statute, an employee must fit in one of these categories to sign a valid non-compete. See O.C.G.A. § 13-8-53.

Read More

Open Banking: A Practical API Licensing Primer

This post is the fourth and final in a series discussing Open Banking, its implementations, and its implications. The start of the series is here, and all of the posts in the series are available here.

In the United States, “open banking” does not yet mean that bank account and transaction data can be freely accessed on standardized terms—though it may in the future. For now, those who allow financial data to be accessed through APIs can impose their own conditions on that access. As we have described in this blog series, without further regulatory invention, in the U.S. API access is principally a contractual matter. For these purposes, we will refer to “providers” as those making API data available and “users” as those intermediaries accessing that data in order to deliver services to consumers or other clients. Although bank partnerships are subject to established contract standards, we will focus in this post on key issues that arise specifically in the course of the API licensing and access process.

Image by mohamed Hassan from Pixabay

APIs made available for free may be provided pursuant to “licenses” or may alternatively be provided pursuant to a “terms of use” document that sets forth the conditions under which use is permitted. Under either approach, if the user refuses to accept the terms, then use is barred. APIs made available for a fee may also be governed by “terms of use” but these terms may be negotiated as a license or service agreement. There, traditional assumptions about bargaining power often play out, with the dominant players typically demanding conformity.

Gating Considerations for API Access Terms

Particularly when the API license is presented as a take-it-or-leave-it agreement, the terms are often written to protect the provider from any liability for an offering from which the provider derives no or limited direct financial benefit. Users that will be paying for access may do so on a “per transaction,” “per user,” or some other basis; when the user pays money, the user understandably has more leverage over other contract terms. Either way, prospective users need to consider at least the following:

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.