Bryan Cave Leighton Paisner Banking Blog

Main Content

GDPR Considerations for Community Banks

The May 25, 2018, compliance effective date of the EU’s General Data Protection Regulation (GDPR) is just weeks away, and many U.S.-based companies have at least by now taken stock of their EU customer base and operations, and developed a baseline set of compliance plans.  For many, that might only entail a data inventory and controls that would ensure that changes to the company’s business plan, advertising strategies, and physical footprint would be assessed for GDPR compliance in advance, just as with any other area of compliance.  However, for companies whose business relies upon the gathering and use of consumer data, the GDPR implementation process has been onerous.

In particular, as recent American Banker coverage has described, this compliance effort is hitting financial institutions of all sizes hard.  While the exact nature and magnitude of enforcement exposure is still unclear, U.S. banks should take a broad view of their overseas business – including where U.S. customers temporarily work or travel – in order to stay ahead of GDPR compliance issues.

For U.S.-based small businesses, including community banks, the conventional wisdom has focused on whether the institution solicits or services EU customers.  Unfortunately this approach may cause banks or other businesses to underestimate their potential exposure.

For purposes of the GDPR, compliance obligations for companies without a physical presence in the EU are generally only implicated if the company (1) offers goods and services in the EU or (2) monitors the behavior of EU customers (referred to affectionately as “data subjects” in the regulation).

Of particular concern for community banks is whether tourists, foreign work assignments, or overseas service members could cause the bank to become subject to GDPR obligations.

Read More

S Corp Workshop

S Corp Workshop

May 2, 2018

Authored by: Bryan Cave Leighton Paisner

On Monday, May 14, 2018, we will be hosting, with our friends at Porter Keadle Moore, LLC and FIG Partners, an S Corp Workshop exploring issues affecting S Corp banks following adoption of the Jobs and Tax Cuts Act.

Operating as an S Corp has historically been an appealing choice for many financial institutions that have the flexibility to be taxed in a variety of ways. In light of the recent tax reform, however, an S Corp structure may not be as beneficial as it has traditionally been in the past. Whether you’re an existing S Corp considering converting, or just want to learn more about key decision points, join us as we take a deeper dive into the mechanics and calculations as well as discuss case studies on how using this election can help you thrive in today’s dynamic business environment.

Monday, May 14
7:30 am – 5:30 pm
Office of Bryan Cave Leighton Paisner
One Atlantic Center, 14th Floor
1201 W. Peachtree St., N.W.
Atlanta, GA 30309

Click here for Agenda.

Read More

New Mortgage Servicing Rules for “Successors in Interest”

Effective as of April 19, 2018, successors in interest to property secured by mortgage loans that are covered by the Real Estate Settlement Procedures Act (“RESPA”) and Truth In Lending Act (“TILA”) now have certain rights under those acts.

These amendments are part of the Consumer Financial Protection Bureau’s 2016 Mortgage Servicing Rule amendments to RESPA and TILA.  The CFPB issued the new rules because “it had received reports of servicers either refusing to speak to a successor in interest or demanding documents to prove the successor in interest’s claim to the property that either did not exist or were not reasonably available.”  81 Fed. Reg. 72,160 at 72,165. The rules are therefore designed to make it easier for potential successors in interest to communicate with servicers and establish that they are successors in interest.

At the outset, the new rules define a “successor in interest” as anyone who obtains an ownership interest in a property secured by a mortgage loan, provided that the transfer occurs under one of the scenarios listed in the new rule.  The scenarios range from a transfer resulting from the death of the borrower to a transfer from the borrower to a spouse or child.  The person does not have to assume the loan in order to be a successor in interest.

The amendments create several potential pitfalls for servicers because certain obligations are triggered when a servicer receives actual or inquiry notice that someone might be a successor in interest.  As discussed below, the amendments require servicers to “promptly” communicate with anyone who may be a successor in interest.  Servicers must also only request documents “reasonably” required to confirm whether that person is in fact a successor in interest.  And a “confirmed” successor in interest now has the same rights as the original borrower under RESPA and TILA mortgage servicing rules.

Read More

Ragnar!

Ragnar!

April 20, 2018

Authored by: Robert Klingler

On April 13 and 14, 2018, the Financial Services Corporate and Regulatory Team of Bryan Cave Leighton Paisner sponsored two teams at the Atlanta Ragnar Trail race.  On this episode of The Bank Account, Jonathan and I discuss the Ragnar race, our thoughts about the Ragnar race, the ambiance of the Ragnar race, the decline of multi-bank charter bank holding companies, and a few final thoughts about the Ragnar race.  We also give thanks to so many colleagues that helped us with the Atlanta Ragnar Trail race.  In other words, if you’re interested about the Atlanta Ragnar Trail race, this is a great episode.

 

The BCLP Ragnar Teams

We divided into two teams, Team BSA (Bankers Speed Ahead) and Team AML (Awkwardly Moving Lawyers).  On paper, it looked like it would be a tight race.  However, the trails proved to be significantly different than running on paper.  In addition, the Awkwardly Moving Lawyers became significantly more awkwardly moving (and slower) when our fastest colleague, Dan Wheeler, badly twisted his ankle on his first leg of the race.  (As one banker commented, the lawyers were quite effective in ensuring that their clients would prevail.)

Team BSA finished in 21 hours, 51 minutes and 50 seconds; 23rd overall and 1st in the corporate team division.

The bankers that sped ahead were as follows:

  • Charlie Crawford, Hyperion Bank
  • Heath Fountain, Planters First Bank
  • Bo Brannen, Georgia Bankers Association
  • Nick Clark, Charter Bank
  • Jim Walker, PrimeSouth Bank
  • JW Dukes, Ameris Bank
  • Jackson McConnell, Pinnacle Bank
  • Dennis Zember, Ameris Bank

Several hours later, Team AML finished in 23 hours, 38 minutes and 19 seconds; 63rd overall and 6th in the corporate team division.

The awkwardly moving lawyers were as follows:

  • Ryan Barrow, Porter Keadle Moore (but an honorary lawyer for the weekend)
  • Megan Canning
  • Crystal Homa
  • Dan Wheeler
  • Kevin Strachan
  • Jonathan Hightower
  • Sean Christy
  • Myself

Charlie Crawford, Jackson McConnell, and Dennis Zember were the three fastest runners for the weekend from Teams BSA and AML, but I believe all had a good time.

the-bank-accountIn actual banking news, we discussed Hilary Burns story in the American Banker, “Do multiple charters still make sense?” In our discussion of the landscape of the U.S. banking environment last year, we touched on the statistical decline in multi-bank charters.

  • In 2016, 632 charters were held by 241 multi-bank holding companies (representing 2.6 charters each).
  • In 2006, 1,670 charters were held by 518 multi-bank holding companies (representing 3.2 charters each).

In 2018, we struggle (and in the podcast, the struggle is awkward silence) to provide any material benefit to the multi-bank charter structure.

Read More

Introducing BCLP and Barry Hester

Jonathan and I discuss two major deals for our us: the formation of Bryan Cave Leighton Paisner (BCLP) and the return or Barry Hester in this latest episode of The Bank Account.

Bryan Cave Leighton Paisner LLP is the result of the mergers of historically U.S.-based Bryan Cave LLP and historically U.K.-based Berwin Leighton Paisner LLP.  As a truly global firm with over 1,600 lawyers operating literally around the clock, we believe Bryan Cave Leighton Paisner is well positioned to serve clients around the globe.  Our blog is still available at BankBryanCave.com, but is also now available at BankBCLP.com.  We’ll figure out over time what our branding looks like.

the-bank-accountBarry Hester re-joins our financial institutions practice after serving for many years as an assistant general counsel for EverBank and TIAA FSB.  In this episode of The Bank Account, we talk with Barry about his experience with the “good guy” and “bad guy” banking compliance laws.  The “good guy” laws include the Servicemembers Civil Relief Act and the Military Lending Act, while the “bad guy” laws include the Bank Secrecy Act and Anti-Money Laundering laws.  As noted in the podcast, Barry has already been busy contributing good content for our blog, with a post last week about FinCEN’s new FAQ on the Customer Due Diligence rules.

As discussed previously, we are sponsoring two teams, one of lawyers and one of bankers, for the Atlanta Ragnar Trail Run on April 13th and 14th.  Sixteen of us will be taking turns running five mile legs at the Georgia International Horse Park over a 24-hour (or so) period.  Team BSA (or Bankers Speed Ahead) will generally consist of our friendly bankers, while Team AML (or Awkwardly Moving Lawyers) will consist of our compatriots from the firm.  I expect our next podcast will relay some interesting stories from the trails.

Read More

FinCEN Provides Relief to CDD Obligations for Existing Customers

The Financial Crimes Enforcement Network (FinCEN) published long-awaited additional Frequently Asked Questions on April 3, 2018 (the “Guidance”) relating to its Customer Due Diligence (CDD) Rule, which FinCEN promulgated pursuant to the Bank Secrecy Act (the “CDD Rule”).  This comes at a time when most covered institutions are in the final stages of implementing plans to comply with the CDD Rule by its May 11, 2018 compliance applicability date.  FinCEN previously published technical amendments to the Rule on September 29, 2017 and an initial set of FAQs on July 19, 2016.  While such Guidance does not have the weight of authority of statute or regulation, it has traditionally helped to form the basis for examination and enforcement expectations.  Here we will focus on themes in the new Guidance relating to application of the rule to existing customers.

As a reminder, the CDD Rule was originally published on May 11, 2016 after years of public hearings and comment periods.  The rule sets forth CDD as a “fifth pillar” of a BSA/AML compliance program in addition to those established by the Bank Secrecy Act itself:  system of internal controls, the appointment of a responsible officer, training, and independent testing.  CDD entails upfront due diligence and ongoing monitoring, and this rule establishes the collection of Beneficial Ownership information as a required element of CDD for legal entity customers.  In releasing the CDD Rule, FinCEN emphasized that CDD is not technically a new requirement but has always been an expected part of a BSA/AML program that results in effective suspicious activity monitoring and risk mitigation.

Read More

D.C. Circuit Rejects FCC’s TCPA Interpretation

March 27, 2018

Categories

On March 16, 2018, the D.C. Circuit issued its long-awaited opinion on the FCC’s 2015 Declaratory Ruling and Order (“2015 Order”) interpreting various sections of the Telephone Consumer Collection Practices Act (“TCPA”)[1]. Of note, the Court specifically rejected and set aside the FCC’s interpretation of what constitutes an Automatic Telephone Dialing System (“ATDS”). The Court also rejected the FCC’s one-call “safe harbor” for re-assigned phone numbers. At first glance, this may seem like a win for those defending TCPA lawsuits; however, the opinion may create more questions than answers.

The Court addressed (i) what types of automatic dialing equipment fall under the TCPA’s definition of ATDS; (ii) whether a dialer violates the TCPA if a number is reassigned to another person who has not given consent to be called; (iii) how a consenting party may revoke consent; and (iv) whether the consent exemption for healthcare-related calls was too narrow. The Court’s scope was limited to whether these aspects of the FCC’s 2015 Order were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). The Court upheld the FCC’s “approach to revocation of consent, under which a party may revoke her consent through any reasonable means” and rejected the one-call “safe harbor” for re-assigned phone numbers as “arbitrary and capricious.”

Read More

Senate-passed Regulatory Reform Offers Real Benefits to Depository Institutions under $10 Billion in Assets

On March 14, 2018, the Senate passed, 67-31, the Economic Growth, Regulatory Relief and Consumer Protection Act, or S. 2155.  While it may lack a catchy name, its substance is of potentially great importance to community banks.

The following summary focuses on the impact of the bill for depository institutions with less than $10 billion in consolidated assets.  The bill would also have some significant impacts on larger institutions, which could, in turn, affect smaller banks… either as a result of competition or, perhaps more likely, through a re-ignition of larger bank merger and acquisition activity.  However, we thought it was useful to focus on the over 5,000 banks in the United States that have less than $10 billion in assets.

Community Bank Leverage Ratio

Section 201 of the bill requires the federal banking regulators to promulgate new regulations which would provide a “community bank leverage ratio” for depository institutions with consolidated assets of less than $10 billion.

The bill calls for the regulators to adopt a threshold for the community bank leverage ratio of between 8% and 10%.  Institutions under $10 billion in assets that meet such community bank leverage ratio will automatically be deemed to be well-capitalized.  However, the bill does provide that the regulators will retain the flexibility to determine that a depository institution (or class of depository institutions) may not qualify for the “community bank leverage ratio” test based on the institution’s risk profile.

The bill provides that the community bank leverage ratio will be calculated based on the ratio of the institution’s tangible equity capital divided by the average total consolidated assets.  For institutions meeting this community bank leverage ratio, risk-weighting analysis and compliance would become irrelevant from a capital compliance perspective.

Volcker Rule Relief

Section 203 of the bill provides 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.

Accordingly, depository institutions with less than $10 billion in assets (unless they have significant trading assets and liabilities) will not be subject to either the proprietary trading or covered fund prohibitions of the Volcker Rule.

While few such institutions historically undertook proprietary trading, the relief from the compliance burdens is still a welcome one.  It will also re-open the ability depository institutions (and their holding companies) to invest in private equity funds, including fintech funds.  While such investments would still need to be confirmed to be permissible investments under the chartering authority of the institution (or done at a holding company level), these types of investments can be financially and strategically attractive.

Expansion of Small Bank Holding Company Policy Statement

Section 207 of the bill calls upon the federal banking regulators to, within 180 days of passage, raise the asset threshold under the Small Bank Holding Company Policy Statement from $1 billion to $3 billion.

Institutions qualifying for treatment under the Policy Statement are not subject to consolidated capital requirements at the holding company level; instead, regulatory capital ratios only apply at the subsidiary bank level. This rule allows small bank holding companies to use non-equity funding, such as holding company loans or subordinated debt, to finance growth.

Small bank holding companies can also consider the use of leverage to fund share repurchases and otherwise provide liquidity to shareholders to satisfy shareholder needs and remain independent. One of the biggest drivers of sales of our clients is a lack of liquidity to offer shareholders who may want to make a different investment choice. Through an increased ability to add leverage, affected companies can consider passing this increased liquidity to shareholders through share repurchases or increased dividends.

Of course, each board should consider its practical ability to deploy the additional funding generated from taking on leverage, as interest costs can drain profitability if the proceeds from the debt are not deployed in a profitable manner. However, the ability to generate the same income at the bank level with a lower capital base at the holding company level should prove favorable even without additional growth.  This expansion of the small bank holding company policy statement would significantly increase the ability of community banks to obtain significant efficiencies of scale while still providing enhanced returns to its equity holders.

Institutions engaged in significant nonbanking activities, that conduct significant off-balance sheet activities, or have a material amount of debt or equity securities outstanding that are registered with the SEC would remain ineligible for treatment under the Policy Statement, and the regulators would be able to exclude any institution for supervisory purposes.

HVCRE Modifications

Section 214 of the bill would specify that federal banking regulators may not impose higher capital standards on High Volatility Commercial Real Estate (HVCRE) exposures unless they are for acquisition, development or construction (ADC), and it clarifies what constitutes ADC status. The HVCRE ADC treatment would not apply to one-to-four-family residences, agricultural land, community development investments or existing income-producing real estate secured by a mortgage, or to any loans made prior to Jan. 1, 2015.

Read More

CFPB Mulvaney Moments

March 6, 2018

Categories

CFPB Mulvaney Moments

March 6, 2018

Authored by: Douglas Thompson

Enforcement of the Law, Quantitative Impact Analysis & Other Gems

Last week CFPB Acting Director Mick Mulvaney had a busy speaking calendar in Washington, D.C. and we all should be listening. He addressed the Credit Union National Association (CUNA)’s Government Affairs Conference on Tuesday, February 27th and the National Association of Attorneys General (NAAG) Winter Meeting on Wednesday, February 28th. While there were differences in the two presentations because of the respective audiences, Mulvaney’s strategic themes were clear. You can watch the CUNA speech here and the NAAG speech here.

1. CFPB will reflect the current administration. Not surprisingly, the CFPB will be run differently under the Trump administration than it had been under the Obama administration. Whatever one’s politics, the Acting Director made abundantly clear that a new sheriff is in town. Mulvaney highlighted the time he has been spending with CFPB staff to share his priorities and to re-align departments and to focus activities under the new strategic constructs. He assured both CFPB staff and the two audiences that despite the strategy shift, he is not anticipating employee layoffs.

2. CFPB enforcement activity will enforce the law. A bit circular? Maybe. Nonsensical in light of past CFPB activity? No. Mulvaney emphasized that institutions should “know what the rules are” before being sued for allegedly failing to comply. In other words, the CFPB should not be challenging company activities which leaders did not reasonably understand violated applicable law. And related, CFPB should not push the envelope. Mulvaney rejected the notion that enforcement suits should be “creative” or that the CFPB should regulate by enforcement. Mulvaney will leave legislative tasks to the Congress. Waxing literary at CUNA, Mulvaney quoted Alexis de Tocqueville’s Democracy in America: “When justice is more certain and more mild, is at the same time more efficacious.” Mulvaney acknowledged the great power the CFPB has and opined that power should be wielded humbly and judiciously.

3. CFPB will quantitatively assess regulatory impacts. Mulvaney spoke to leveraging cost-benefit analysis at the Bureau. He will require quantitative benefits and burdens to be assessed before changes are made to regulatory requirements. He intends rule making with substantial accountability and transparency, including input from consumer groups, Attorneys General, and industry. Mulvaney hopes the CFPB will “hear” (not just listen) when engaging in these analyses, acknowledging previous criticism that the Bureau may have been “checking in the box” in that regard.

Read More

Getting to Yes: A Conversation About Deal Certainty

the-bank-accountJonathan and I discuss deal protections and considerations – from the initial emotions of deciding to sell through deal signing in this latest episode of The Bank Account.

This episode has, in my opinion, some great information for banks looking to undertake M&A activity, from either the buyer or seller’s perspective.  But, I’m most impressed with our smooth transition from friendly banter about our upcoming Ragnar race to our substantive discussion.  (Of course the face that I’m impressed only emphasises that I shouldn’t quit my day job.)

As noted on the podcast and previously, we are sponsoring two teams, one of lawyers and one of bankers, for the Atlanta Ragnar Trail Run on April 13th and 14th.  Sixteen of us will be taking turns running five mile legs at the Georgia International Horse Park over a 24-hour (or so) period.  Today we settled on team names: Team BSA and AML.  Team BSA (or Bankers Speed Ahead) will generally consist of our friendly bankers, while Team AML (or Awkwardly Moving Lawyers) will consist of our compatriots from the firm.  We’re pretty comfortable that the names will accurately reflect the results.

Read More
The attorneys of Bryan Cave LLP 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.