Bankruptcy courts are probably the only courts in which motions related to stays involve interesting legal issues with any regularity. Case in point: A recent bankruptcy decision from the District of Montana considered—on a motion to modify stay—whether a “Wholesale Financing Agreement” (“WFA”) and a “Wholesale Finance Security Agreement” (“WFSA”) created a creditor-debtor relationship or an express trust. The decision, which holds that a secured financing rather than a trust was created, contains solid analysis of a number of frequently encountered Article 9 issues. The case is In re Hawaii Motorsports, LLC, 2020 Bankr. LEXIS 3428 (Bankr. D. Mont. Dec. 7, 2020).
In the waning days of the Trump Administration, the Consumer Financial Protection Bureau fulfilled its promise to address the holes left in its first set of rulemaking amending the federal debt collection rule known as Regulation F. The finalizing amendments are now complete, making it possible to gain some preliminary perspective on the 2020 revised regulation in its entirety.
The end of 2020 and start of 2021 have been marked by a new round of Paycheck Protection Program legislation and updated regulations, as well as a number of decisions from the courts concerning PPP issues—all of which hopefully provides additional clarity for a program in which clarity has often been sorely lacking.
Early in this millennium, the Sedona Conference earned a reputation for providing helpful, workable guidance for emerging and overlooked or underserved areas of the law, particularly e-discovery. Via a series of think-tank-style working groups focused on discrete legal issues, the Sedona Conference tries to create “practical solutions and recommendations” which are then “developed and enhanced through a substantive peer-review process” and ultimately “widely published in conjunction with educational programs for the bench and bar, so that it can swiftly drive the reasoned and just advancement of law and policy in the areas under study.” Many judicial decisions—especially from the district courts that must effectively, efficiently, and justly administer the law and civil rules—rely upon and even praise the principles developed by the Sedona Conference, whose mission “is to move the law forward in a reasoned and just way through the creation and publication of nonpartisan consensus commentaries and through advanced legal education for the bench and bar.”
The banking industry entered the coronavirus pandemic in a position of relative strength—far stronger than it was before the Great Recession. As a result, everyone from bank customers to the federal government has looked to banks to help them weather the COIVD-19 storm. In particular, the CARES Act and its Paycheck Protection Program (“PPP”) created a structure that used banks as conduits for quickly distributing hundreds of billions of dollars of loans to businesses in the hopes that those businesses could continue to pay employees, mortgages and leases, and utilities and thus remain in business.
A favorite guessing game before the Biden administration takes charge is prognostication. The fate of agency rulemaking promulgated by the Trump administration in the area of consumer protection is a hot topic. The Consumer Financial Protection Bureau (CFPB or Bureau) recently released the first of two final rules on debt collection practices (Final Rule). Under a new Bureau head chosen by the Biden team, there is a good chance the CFPB’s rulemaking on debt collection practices is going to be revisited.
After years of regulatory juggling, in July 2020 the Consumer Financial Protection Bureau (CFPB) released its so-called “Final Payday Lending Rule,” revoking the mandatory Underwriting Provisions of the 2017 Final Rule. The CFPB’s revocation of the Underwriting Provisions represents an enormous win for the small dollar lending industry. The latest iteration of the Final Rule leaves the Payment Provisions intact. Long overshadowed by the controversy over the Underwriting Provisions, the Payment Provisions are now the center of attention although the Underwriting Provisions may be resurrected when the new Biden Administration takes control of the CFPB.
Only in New York is the rule insulating a depositary bank from a direct conversion claim still good law. The rule is based on an old version of the UCC. A provision found in the Revised UCC, adopted by all the other states, completely overturns the old Code’s barrier. A recent ruling on a motion to dismiss by a New York federal district court illustrates the glaring anomaly.
Confusion continues to swirl around PPP loan forgiveness for lenders and borrowers. Lenders are holding back on processing loan forgiveness applications. Small businesses continue to be adversely affected by the pandemic. For small businesses, the need for economic assistance ostensibly coming from loan forgiveness is dire.
A story in the June 2020 issue of this newsletter analyzed the recent final rule regarding interest rate transfers promulgated by the Office of the Comptroller of the Currency (OCC) after Acting Comptroller Brian Brooks pressed the issue as one of his first policy initiatives. The "Permissible Interest on Loans that are Sold, Assigned or Otherwise Transferred" rule (Final Rule) confirms national banks and federal savings associations may rely on the long-standing "valid-when-made" principle, which allows purchasers of loans from financial institutions to continue to enforce the interest rate available to the bank or savings association, even if the rate would otherwise violate state usury laws.
For all the uniformity the UCC brings to the areas of law that it covers, it remains the case that the UCC frequently does not define key terms. As a result, state law steps in and fills the definitional gaps created by the UCC. For example, the U.S. Supreme Court has explained that
Filling out the collateral description box in a UCC financing statement is tedious work. Why not just incorporate the collateral description from the security agreement and record the financing statement with the UCC filing office? Sounds like an easy shortcut.
The Office of the Comptroller of the Currency (OCC) recently released a Notice of Proposed Rulemaking which creates a bright line test for discerning what entity is the "true lender" in a loan transfer transaction between a national bank and a third party. This is a significant regulatory development coming on the heels of new, final prudential rulemaking by the OCC and the Federal Deposit Insurance Corporation (FDIC) on interest rate transfers.
In general, irrevocable letters of credit are invincible under Article 5 of the Uniform Commercial Code. What happens when the conservator of a failed credit union repudiates a letter of credit, relying on its powers under the Federal Credit Union Act because the beneficiary did not draw on the letter of credit before the appointment of the conservator? The story of how the beneficiary of the letter of credit successfully battled the National Credit Union Administration Board is told by the U.S. Court of Appeals for the Eighth Circuit in a recent decision.
Since the Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) in 2008, a shadow has hung over the agency. Dodd-Frank implemented a unique structure for the CFPB consisting of a single director insulated from the executive power of the President because he or she is only removable "for cause." CFPB's critics attacked this single-director structure as unconstitutional. Under the separation of powers doctrine, they argued, the President must retain the unconditional power to remove the director as a matter of discretion, or "at will." For its detractors, disbanding the CFPB became their mission. Under that scenario, the unconstitutional for-cause removal rule for the agency's director would render the whole agency illegitimate.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act introduced a consumer protection regime that broadly prohibits unfair, deceptive, and abusive acts by financial institutions and other covered entities or persons in connection with consumer transactions regarding financial products or services. While earlier UDAP statutes, such as Section 5(a) of the FTC Act, prohibit unfair and deceptive acts and practices, Dodd-Frank added the "abusive" piece. In the years since the enactment of Dodd-Frank, the Consumer Financial Protection Bureau, which administers Dodd-Frank UDAAP, has struggled to define what constitutes "abusive" behavior and to differentiate abusive acts from unfair or deceptive acts.
Due to the restrictions on social distancing created by the Coronavirus pandemic, the days when closings on big financial deals occurred in person around the board room table seem to be gone, at least until the spread of COVID-19 is arrested. The customary handshake and pat-on-the-back are no longer socially acceptable. E-signatures are becoming more common than wet ones.
As his first major policy initiative, on the day he assumed office, acting Comptroller of the Currency Brian Brooks spearheaded the release of the OCC’s final rulemaking on permissible interest rate transfers. The Final Rule is intended to offer comfort to national banks and federal savings associations relying on the “valid-when-made” common law principle, which protects the interest rate on a loan after the loan is transferred.
Sixteen years ago, the Supreme Court of Georgia handed down a legal malpractice decision reading into the law an attorney’s duty to file a UCC continuation statement (UCC-3) in a transactional financing deal where loan payments extended beyond the original five-year effective period of the original financing statement (UCC-1). At the time of the closing, the defendant attorney did not inform his client about the UCC’s lapse rules and need to file a UCC-3.
Over the years, this newsletter and the related book, Clarks’ Oil and Gas Financing Under the UCC, have emphasized the volatile, cyclical nature of oil and gas commodity prices and the challenges banks face when lending to the oil and gas industry. But even by the standards of an industry used to boom and bust cycles, volatility in the oil commodity markets has been unprecedented in recent weeks.