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Banking Law Committee Activity in Review
As published in the NY Business Law Journal:
Winter 2012 NY Business Law Journal
Banking Law Committee
At the Section’s Spring Meeting in New York City, the Banking
Law Committee held a well-attended meeting, featuring Jonathan
Rushdoony, regional counsel of the Office of the Comptroller of the
Currency (“OCC”) and his colleague, James Porreca, who was
formerly counsel to the Office of Thrift Supervision
(“OTS”). The OTS was abolished under the Dodd-Frank reform
law and its functions merged into other bank regulatory agencies,
paralleling their existing responsibilities for commercial banks. Thus,
the OCC, which charters and regulates national banks, took on
responsibility for federally chartered thrift institutions; the FDIC,
which supervises state banks, for state-chartered thrifts; and the
Federal Reserve, which supervises bank holding companies, for savings
and loan holding companies. Messrs. Rushdoony and Porreca discussed the
progress made in transitioning the supervisory authority for federal
thrift institutions to the OCC. The meeting also featured a presentation
by Mark Zingale, Esq., Senior Vice President and Deputy General Counsel
to The Clearing House. Mr. Zingale described the functions of The
Clearing House, which represents its twenty largest bank members, and
discussed the outstanding exposure draft on corporate governance
practices for banking organizations. Attendees received two CLE
credits.
At the Section’s annual Fall Meeting at Cornell University in
Ithaca, the Committee assisted in putting together a panel discussion on
the role of the Consumer Financial Protection Bureau
(“CFPB”) created by Congress under the Dodd-Frank Wall
Street Reform and Consumer Protection Act to establish uniform rules for
an array of consumer fi nancial products, such as credit cards and
mortgage loans, without regard to the type of institution that issues
them. Cornell Law Professor Charles Whitehead, formerly an international
attorney with Citibank and other financial institutions, offered a
probing and insightful analysis of how consumer financial product
regulation was likely to evolve under the CFPB. Section Vice Chair Jay
Hack discussed the new agency from the perspective of community banks.
Of particular interest was the discussion of the CFPB’s first
enforcement action, against Capital One Bank, for alleged deceptive
practices in marketing add-on products, such as credit insurance and
credit monitoring, in conjunction with marketing its credit cards to
consumers. The Bank was required to pay $140 million in restitution to
customers, and an additional $60 million in fines to the CFPB and the
Bank’s primary regulator, the Office of the Comptroller of the
Currency.
The Committee was also addressed by Janet Nadile, Esq., of Cravath
Swaine & Moore, who is coordinating the efforts of the New York City
Bar Association to introduce and enact an Omnibus UCC reform bill in the
New York State Legislature. Ms. Nadile explained that New York State is
the only state that has failed to enact the reforms, which date back to
the early 1990s. One of the principal objections to the proposal in the
State legislature had related to check truncation (i.e., banks not
returning the physical checks drawn on customers’ accounts); this
concern was effectively mooted in the early 2000s with the enactment of
the federal Check 21 law. The City Bar is seeking the NYSBA’s
support for the legislation. At this writing, the proposal is being
vetted by the NYSBA’s Executive Committee (see the report of the
Legislative Affairs Committee, below).
-- David L. Glass, Chair
Summer 2012 NY Business Law Journal
Banking Law
Committee
The Banking Law Committee held a meeting as part of the New York
State Bar Association’s Annual Meeting in New York City in
January. The Committee heard presentations from Michael V. Campbell,
Counsel and Assistant Vice-President at the Federal Reserve Bank of New
York (“FRBNY”), and Roberta Kotkin, General Counsel, Chief
Operating Officer, and Corporate Secretary of the New York Bankers
Association (“NYBA”).
Mr. Campbell, who has served a pivotal role in the start-up of the
Consumer Financial Protection Board within the Federal Reserve System,
as mandated by 2010’s Dodd-Frank reform law, compared
Pennsylvania’s Homeowner’s Emergency Mortgage Assistance
Program (“HEMAP”), begun in 1983 in response to steel
industry layoffs of that decade, with the federal government’s
home loan extension program. He explained that the FRBNY would be
approaching the Banking Law Committee for its support to enact a similar
legislative proposal for New York that would provide a bridge loan in
response to specific types of financial hardship such as a temporary
loss of income, where there is a reasonable expectation that the person
will shortly be able to resume making mortgage payments, including
repaying the State’s bridge loan.
Ms. Kotkin described the continuing implementation of the merger of
the New York State Banking Department and the New York Insurance
Department into the Department of Financial Services. She highlighted
the authorizing legislation’s emphasis on improving the state
banking charter, commitments to increase resources, and the
specialization of consumer protection in other agencies.
She also described the NYBA’s efforts with respect to various
pieces of legislation proposed to broaden the definition of financial
fraud, to reduce the escheat period from five to three years, to permit
the electronic recording of real estate instruments, and to impose
greater burdens on banks that foreclose properties.
At the Section’s Spring Meeting the Banking Law Committee held
a well-attended meeting, featuring Jonathan Rushdoony, regional counsel
of the Office of the Comptroller of the Currency (“OCC”),
and his colleague, James Porreca, who was formerly counsel to the Office
of Thrift Supervision (“OTS”), which was abolished under the
Dodd-Frank reform law with its functions merged into other bank
regulatory agencies. Messrs. Rushdoony and Porreca discussed the
progress made in transitioning the supervisory authority for federal
thrift institutions to the OCC. The meeting also featured a presentation
by Mark Zingale, Esq., Senior Vice President and Deputy General Counsel
to The Clearing House. Mr. Zingale described the functions of The
Clearing House, which represents its 20 large bank members, and
discussed the outstanding exposure draft on corporate governance
practices for banking organizations. Attendees received two CLE
credits.
-- David L. Glass, Chair
Winter 2011 NY Business Law Journal
Banking Law
Committee
In September the Banking Law Committee held a meeting at the Business
Law Section’s Fall Meeting in Cooperstown, which featured an
extensive discussion with the New York State Banking Department’s
two most senior counsel, Marj Gross, Esq., general counsel, and Rosanne
Notaro, Esq., deputy general counsel, regarding issues related to that
department’s consolidation with the New York Insurance Department
to form the New York State Department of Financial Services effective
October 3, 2011. As part of his budget program for the current year,
Governor Cuomo proposed, and the Legislature enacted, a sweeping
consolidation of the State agencies, which included the merger of the
Banking and Insurance Departments. Ms. Gross and Ms. Notaro noted that
the merger would not significantly affect banks and their counsel, as
the staffs of the two agencies will remain largely intact in the near
term. Randy Henrick, Esq., Associate General Counsel of DealerTrak,
Inc., reported on changes—statutory and regulatory—to
adverse action and credit score disclosures brought about by the Wall
Street Reform and Consumer Protection (“Dodd-Frank”) Act
which are being implemented by both the Federal Reserve Board and the
Federal Trade Commission. The rules are complex, but generally relate to
the disclosures required to be given to a consumer when a creditor takes
an “adverse action” on a credit application—i.e.,
denying the application or offering credit on less favorable terms than
those requested. The committee also heard from Clifford S. Weber, Esq.,
partner at Hinman, Howard & Kattell, LLP on the application of the
Business Judgment Rule by New York courts to community bank business
combinations. Mr. Weber reported that the business judgment rule has
been upheld in a situation involving the merger of two banks in the
state—i.e., the directors of the bank will not be personally
liable in a cause of action by aggrieved shareholders, as long as they
acted in good faith in approving the transaction. Mr. Weber’s
article on this matter appears elsewhere in this issue.
At its Spring Meeting, the committee’s featured guest was
Richard Coffman, Esq., general counsel of the Institute of International
Bankers (“IIB”). Mr. Coffman discussed the IIB’s
recent initiatives, in particular the issues raised by Dodd-Frank that
affect foreign banks. He also reported on Koehler v. Bank of
Bermuda, 12 N.Y.3d 533 (2009) in which New York’s Court of
Appeals held that the Bank of Bermuda must turn over to the creditor
stock certificates to satisfy a judgment granted by a Maryland court and
the subsequent cases to which this decision has given rise. The concern
of the banking community in the state is that New York will become a
forum to sue banks to recover assets of judgment debtors held by banks
at non-New York offices, and with respect to matters that have no
relationship to New York. To date, however, the legislature has not been
amenable to corrective legislation. Cases subsequent to Koehler
appear to be limiting its applicability, however.
—David L. Glass, Chair
Summer 2011 NY Business Law Journal
Banking Law Committee
The Banking Law Committee has continued to pursue an active agenda in
2011, broadened by the newly consummated merger with the former Consumer
Finance Committee. At the Committee’s January meeting, held in
conjunction with NYSBA’s Annual Meeting, the program included Mr.
Randy Henrick, Associate General Counsel of DealerTrak, Inc., who
reported on the final rules issued jointly by the Federal Reserve Board
and the Federal Trade Commission to implement, effective January 1,
2011, the risk-based pricing provisions of the Fair and Accurate Credit
Transactions Act of 2003 (FACT Act), which amended the Fair Credit
Reporting Act (FCRA). The purpose of the rule is to require notice to
consumers when they are offered or provided credit on terms that are
materially less favorable than those available to a substantial
proportion of consumers from that creditor, based in whole or in part on
a credit report obtained for that consumer. The agencies issued the
rules to clarify that the risk-based pricing notice requirements apply
only in connection with credit that is primarily for personal,
household, or family purposes—not credit extended for business
purposes. The final rules provide two alternative methods for
determining which consumers must receive risk-based pricing notices for
those creditors that prefer not to compare directly the material terms
offered to their consumers:
1) the credit score proxy method. A credit
score is a numerical representation of a consumer’s credit risk
based on information in the consumer’s credit file. The final
rules permit a creditor that uses credit scores to set the material
terms of credit to determine a cutoff score, representing the point at
which approximately 40 percent of its consumers have higher credit
scores and 60 percent of its consumers have lower credit scores, and
provide a risk-based pricing notice to each consumer who has a credit
score lower than the cutoff score. When credit has been granted,
extended, or provided on the most favorable material terms to more than
40 percent of consumers, the creditor may set its cutoff score at a
point at which the approximate percentage of consumers who historically
have been granted, extended, or provided credit on material terms other
than the most favorable terms would receive risk-based pricing notices.
The cutoff score must be updated once every two years.
2) the tiered pricing method. Under this method, a creditor that sets
the material terms of credit by assigning each consumer to one of a
discrete number of pricing tiers, based in whole or in part on a
consumer report, may use this method and provide a risk-based pricing
notice to each consumer who is not assigned to the top pricing tier or
tiers.
The final rules also include certain exceptions, including one for
creditors that provide a consumer with a disclosure of the
consumer’s credit score in conjunction with additional information
that provides context for the credit score disclosure.
Mr. Henrick also reviewed the changes to FTC “Red Flags
Rules” that require that each “financial institution”
or “creditor” that offers or maintains one or more
“covered accounts” to develop and implement a written
Identity Theft Prevention Program that is designed to detect, prevent,
and mitigate identity theft in connection with the opening of a covered
account or any existing covered account. The changes enabled the FTC to
begin full-fl edged enforcement of the rules on January 1, 2011.
With echoes of its previous ill-considered treatment of lawyers as
“financial institutions” required to send consumer privacy
notices to their clients—a position defeated in court in a lawsuit
brought by the NYSBA—the FTC has been seeking to apply the Red
Flags Rule to lawyers as well. The Congress has overridden this effort
in the Red Flag Program Clarifi cation Act (“RFPCA”), which
narrows the term “creditor” to one who regularly and in the
ordinary course of business:
- • obtains or uses consumer reports in connection with credit
transactions;
- • furnishes information to a consumer reporting agency (CRA)
in connection with a credit transaction; or
- • advances funds to or on behalf of a person based on that
person’s obligation to repay the funds or repayable from specific
property pledged by or on behalf of the person.
The third category does not include a creditor that advances funds on
behalf of a person that are incidental to a service provided by the
creditor to the person. The exclusion for an entity that “advances
funds on behalf of a person that are incidental to a service provided by
the creditor to the person” is meant to exempt professional
service providers such as lawyers, doctors, and dentists. At the same
time, the RFPCA also allows the FTC and the banking agencies to include,
by regulation, any other entity that is a “creditor” under
the Equal Credit Opportunity Act that the FTC determines to offer or
maintain accounts that are subject to a reasonably foreseeable risk of
identity theft. This creates a potential tension between provisions in
the RFPCA, as the FTC, by regulation, could arguably include entities
that would otherwise be excluded by the RFPCA. Because this would have
to be done through the rulemaking process, there would presumably be at
least one public comment period during which the public could express
support for, or object to, the coverage of any entity as a creditor.
The Chair then led a discussion of the legal impediments to investing
in a bank or thrift institution by a non-banking investor (e.g., a
private equity or sovereign wealth fund) and the Federal Reserve
Board’s and FDIC’s efforts to facilitate such investments,
based upon his article “So You Think You Want to Buy a
Bank?” (which appeared in the Winter 2010 issue of the NY
Business Law Journal). Although the number of problem
banks on the FDIC’s “watch list” has reached the
highest level in more than 20 years, the results of the FRB’s and
FDIC’s efforts to encourage non-bank investments in banks have
been less than they might have been because of the thicket of regulation
that surrounds any entity that would presume to own or invest in a bank
and the uncertain legislative climate. While private equity firms seek a
controlling position in undervalued companies, then “fi x them,
grow them, and sell them,” usually in a period of three to five
years, bank regulatory laws place severe restrictions on entities that
control banks that may make this difficult or impossible to achieve.
During the Spring, at the request of NYSBA President Stephen Younger,
the Committee actively debated whether the NYSBA should take a position
regarding Governor Cuomo’s proposal, as part of his budget bill,
to combine the State Banking and Insurance Departments and the Consumer
Protection Board. The Committee members expressed some concerns about
the breadth and scope of the new Department’s authority,
particularly with respect to the expansive definitions of financial
fraud and financial products and services. However, subsequent
amendments alleviated those concerns, by eliminating from the definition
of financial fraud, among other things, Martin Act (securities law)
violations and criminal activity. The definition of financial products
has also been narrowed to appropriately encompass only the banking law
and insurance law, rather than an array of undefined “other
laws.” Further amendment assured that the safety and soundness of
financial institutions would be a clearly articulated policy goal of the
Department, along with consumer protection, and that assessments on
insurance companies and financial institutions would be structured to
ensure that no insurance company expenses are assessed against banks,
and vice versa.
—David L. Glass, Chair
Winter 2010 NY Business Law Journal
Banking Law Committee
The Banking Law Committee held a well-attended and very productive
meeting as part of the Section’s Fall Meeting in Saratoga in
mid-October. The focus was (what else?) the new Dodd-Frank reform law
and the future of banking. We were fortunate to have as our guest
speakers Michael Campbell, Esq., a senior attorney at the Federal
Reserve Bank of New York, and Jonathan Rushdoony, Esq., District Counsel
for the Office of the Comptroller of the Currency (OCC). Mr. Campbell,
who also currently serves as Chair of the Banking Law Committee of the
Association of the Bar of the City of New York, is on secondment from
the Federal Reserve to the Treasury Department at present, where he is
assisting in establishing the new Consumer Financial Protection Bureau
established by Dodd-Frank. At this stage the Bureau is recruiting
personnel, with a focus on staff of the existing regulatory agencies who
have responsibility for consumer financial protection. While the
Bureau’s mandate is to write rules for a broad range of consumer
financial products, the regulatory agencies will have primary
responsibility for assuring compliance and enforcement for the
institutions under their charge and thus will be able to balance
consumer protection against their traditional mandate to assure safety
and soundness. Mr. Campbell said that the Bureau’s interim head,
Professor Elizabeth Warren of Harvard Law School, whose appointment by
President Obama has been controversial, has a primary focus of enhancing
transparency, rather than restricting or prohibiting particular
products. Mr. Rushdoony spoke about the challenges to the OCC of
implementing provisions of the law. For example, historically the OCC
has relied upon ratings by nationally recognized statistical rating
organizations to determine which securities are permissible investments
for national banks; the legislation forbids the use of these ratings
going forward, so the OCC is currently reviewing and revising its rules.
Finally, Section Chair Bruce Baker contributed some very useful
observations regarding how Dodd-Frank is perceived by smaller community
banks, especially the concerns about increased compliance costs and a
chilling effect on bank lending.
—David L. Glass, Chair
Summer 2010 NY Business Law Journal
Banking Law Committee
The Banking Law Committee met in January during the Bar’s
Annual Meeting. The primary focus was the Wall Street Reform and
Consumer Protection Act of 2009 (H.R. 4173), passed by the House in
December. Our guest speakers were Michael Campbell, Counsel, Federal
Reserve Bank of New York and Chair of the Banking Law Committee of the
City Bar Association; Marjorie Gross, General Counsel of the New York
State Banking Department; Rosanne Notaro, the Department’s Deputy
Counsel; and Committee member Kathleen Scott, Counsel with Arnold &
Porter in New York City.
Ms. Scott set the stage with a thorough and informative outline of
the bill and its provisions. Mr. Campbell focused on bank and bank
holding company regulatory changes in the bill, privacy law, and
corporate governance. He also commented on merchant banking investments
by financial holding companies, consumer protection rules for the sale
of insurance products through banks, and rules requiring disclosures to
consumers under the Fair Credit Reporting Act. With respect to holding
companies, Mr. Campbell noted that the bill would establish a system for
resolving “systemically significant” firms, regardless of
whether they were currently subject to federal oversight. Another key
provision is “skin in the game”—i.e., requiring
lenders to retain portions of loans that they distribute through
securitizations to encourage responsible lending. Mr. Campbell also
provided perspective on the questions of whether financial oversight
would take the form of supervision or regulation and the inherent
tension in banking regulation between safety and soundness when
weighed against the need to protect consumers.
Ms. Gross and Ms. Notaro offered a number of insights into the
potential effects of H.R. 4173 on state banking regulation. Their
comments described the further improvements to the regulation of bank
holding companies and depository institutions, including enhanced
oversight of some types of institutions that have been exempt (e.g.,
industrial development banks), reports and exams, restrictions on
affiliate transactions and troubled institutions, capital levels,
examination of small institutions, relation to state law, enforcement
powers of the states, existing contracts, and preemption.
Future meetings will deal with issues including permissible messenger
service activities under New York State branching rules and derivatives
regulation under the proposed financial reform legislation.
—David L. Glass, Chair
Fall 2008 NY Business Law Journal
Banking Law Committee
The Banking Law Committee met four times in 2008. The Committee has
heard presentations on judicial, regulatory, legislative, litigation and
transactional developments, including those involving the subprime
mortgage crisis. Speakers have included the General Counsel of the New
York Banking Department and the Regional Counsel of the OCC. We continue
to seek to build attendance at our meetings by providing quality
presentations, CLE credit and a forum for idea exchange.
—Clifford Weber, Chair
Spring 2008 NY Business Law Journal
Banking Committee
The Committee’s meetings have had a number of substantive
presentations, and have included active participation by representatives
of the federal and state regulatory authorities. In 2007 we featured the
following presentations:
i) Roberta Kotkin, Esq. reported on Watters v. Wachovia Bank, in
which the United States Supreme Court applied federal preemption
principles to uphold the exclusive visitation rights of the Office of
the Comptroller of the Currency, as the regulator of national banks,
over the operating subsidiaries of national banks, even though those
subsidiaries are established under state law; ii) Jacob Zamansky, Esq.
gave a presentation on subprime mortgage litigation; iii) Celeste
Kaptur, Esq., Regional Counsel for the Small Business Administration,
gave a presentation on small business lending; and iv) Lewis Goodman,
Esq., gave a presentation on workouts and restructuring.
Attendees uniformly found the presentations valuable and informative.
They also received one hour of CLE credit. As Chair, I intend to arrange
for CLE credit for all future meetings during my tenure, as a way to
both increase attendance and make the meetings as relevant and helpful
as possible for the members.
—Clifford S. Weber, Chair
Fall 2007 NY Business Law Journal
Banking Committee
The Committee met on May 3. We
had four substantive presentations, as follows:
(i) Roberta Kotkin, Esq.,
reported on Watters v. Wachovia, in which the United States Supreme
Court applied federal preemption principles to uphold the exclusive
visitation rights of the Office of the Comptroller of the Currency, as
the regulator of national banks, over the operating subsidiaries of
national banks, even though those subsidiaries are established under
state law;
(ii) Jacob Zamansky, Esq., gave a presentation on subprime mortgage
litigation;
(iii) Celeste Kaptur, Esq., Regional Counsel for the Small Business
Administration, gave a presentation on small business lending; and
(iv) Louis Goodman, Esq., gave a presentation on workouts and
restructuring.
Attendees uniformly found the
presentations valuable and informative. They also received one hour of
CLE credit. As Chair, I intend to arrange for CLE credit for all future
meetings during my tenure, as a way to both increase attendance and make
the meetings as relevant and helpful as possible for the
members.
—Clifford S. Weber,
Chair
Spring 2007 NY Business Law Journal
Banking Committee
The Banking Committee focused
on emerging developments in bank regulation and loan documentation in
its meetings in 2006.
At the January meeting, held in
conjunction with the Annual Meeting, Roberta Kotkin, Esq., General
Counsel and Chief Operating Officer of the New York Bankers Association,
presented an overview of legislative and regulatory developments
anticipated for the 2006 session as well as a review of 2005 enactments.
Randy Henrick, Esq., Associate General Counsel of Dealer Track, Inc.
gave a presentation on identity theft and the evolving state and federal
regulatory framework that deals with this growing problem.
At the Spring Meeting in May,
Paul Lee, Esq., of Debevoise & Plimpton presented on Bank Secrecy
Act and Anti-Money Laundering Developments. Raymond Seitz, Esq., and
Deborah Doxey, Esq., of Phillips Lytle LLP reviewed Commercial Law
Developments and the Model Deposit Account Control Agreement.
The Fall Meeting, held at the
Cranwell resort in Lenox, Massachusetts, featured a presentation by Sara
Kelsey, Esq., Deputy Superintendent and General Counsel of the New York
State Banking Department, on the Banking Department’s current
enforcement initiatives in the anti-money laundering area. David Billet,
the Banking Department’s Director of Government Relations, also
provided an outline summarizing banking law changes/enactments during
the current legislative session. Norman Nelson, Esq., General Counsel of
the Clearing House Association L.L.C., summarized the amicus brief that
the Clearing House Association L.L.C. submitted in the Watters v.
Wachovia case, recently argued before the U.S. Supreme Court.
—Bruce J. Baker,
Chair
| Committee Activity in Review - Banking Law |
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