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.
Loan forgiveness is one of the driving forces attracting borrowers to the Payroll Protection Program (PPP) passed by Congress under the CARES Act. To date, the rules governing loan forgiveness are murky at best.
A hot topic for financial institutions during the COVID-19 crisis is how to protect their right to insurance payments under business interruption insurance policies. In these COVID-19 times, Financial Institutions (FIs) commonly have relationships on both the depository and lending sides with their commercial customers who may be piling up fees on depository accounts and be in arrears on loan payments. Bank customers, on the other hand, may be looking to shield payments from their creditors.
In a case of first impression, the Supreme Court of Illinois (Illinois Supreme Court) held a Futures Commission Merchant (FCM) to be a “bank” under the wire transfer rules found in Article 4A of the Uniform Commercial Code (UCC). The defendant is Wedbush Securities, Inc. (Wedbush Securities). The fraudsters infiltrated the plaintiffs’ email system and successfully tricked Wedbush Securities into honoring fraudulent payment orders.
The Board of Governors of the Federal Reserve Board (FRB) will offer up to $500 billion in lending to states and municipalities to help manage cash flow shortfalls created by the coronavirus pandemic. This new credit facility extends and expands the Municipal Liquidity Facility (MLF) announced by the FRB in early April 2020.
If a debtor has granted a consensual security interest in the funds in its deposit account to a secured lender, does the lender have priority over the claims of a judgment creditor who later levies against the funds in the deposit account? One leading decision is a 2016 case from a California federal district court. The court gives priority to the judgment creditor under the rules of Article 9. The decision thoughtfully resolves the priority issue based on the language and policies behind UCC 9-332(b). More recent case law stands firmly behind the California case.
Bank of America successfully defeated a series of judicial maneuvers by a putative class of small businesses. The plaintiffs seek an order mandating the bank to open its lending doors under the Payroll Protection Program of the CARES Act to small businesses who lack preexisting depository and credit borrowing relationships with BofA. Significantly, the Maryland federal district declined to read a private right of action into the CARES Act. An appeal is pending before the United States Court of Appeals for the Fourth Circuit.
CARES ACT stimulus payments from the Treasury are reaching deposit accounts at U.S. financial institutions throughout the country. The $2.2 trillion legislation authorized these payments to help mitigate the economic hardships individuals are facing as a result of the coronavirus crisis.
The law governing UCC continuation statements is pretty straight-forward. Let’s take a quick look at the rules governing continuation statements. This is an area that has generated little litigation. The biggest issue involves “retroactive lapse” if the secured lender fails to comply with the Article 9 rules after the debtor has taken bankruptcy.
Nature of structured settlements. This is the era of structured tort settlements and lottery prizes. Some beneficiaries of these streams of payment do not want to take payments over years, but want to cash out immediately. These consumer products are widely advertised on television. We’ve analyzed these issues before in this newsletter and in our treatise. But, now is a good time to revisit the legal rules governing structured settlements.
In recent years, we have observed the remarkable fallout of the GM bankruptcy, including the titanic battle between secured and unsecured creditors arising out of a mistaken termination statement that related to the wrong loan. Another notable case wipes out the security interest of a small community bank resulting from a mistaken termination statement.
In conjunction with its launch of the small business loan program, the FDIC provided financial institutions with answers to fundamental questions relating to working with borrowers affected by the COVID-19 outbreak and also answers to operational questions facing financial institutions arising from the COVID-19 crisis. The questions and answers are found on the FDIC’s website at www.fdic/gov. Here we report on the FDIC’s release dated March 19, 2020, the first iteration made available.
A study committee, formed by the Uniform Law Commission and the American Law Institute, has embarked on the most ambitious and extensive revision project in the 60-year history of the Uniform Commercial Code. Intended to bring the UCC more fully into the digital age, the scope of the study covers all articles of the Code.
In general. The proper characterization of the transaction is crucial for at least two purposes: If a true lease is involved, (1) the lessor need not file a UCC financing statement and (2) if the debtor files bankruptcy, the trustee must assume or reject the lease, without imposing cramdown on the lessor. In recent years, most of the litigation has occurred in the bankruptcy courts, with a focus on the right of the purported lessor to recover the equipment unless the trustee assumes the lease obligations in full under the Bankruptcy Code, 11 USC 365. In a significant decision, an Alabama bankruptcy court was unwilling to recharacterize a TRAC (“terminal rental adjustment clause”) equipment lease as a disguised secured transaction for purposes of 11 USC 365.
In a recent bankruptcy court decision from North Carolina, a secured lender was wiped out because it never obtained a security agreement that included a grant of a security interest by the debtor to the secured party (not just an affiliate). In In re Jarvis, 2020 Bankr. LEXIS 19 (Bankr. W.D. N.C. January 2, 2020), the debtor, Jacob Jarvis, sought to exercise his role as a hypothetical lien creditor under Section 544 of the Bankruptcy Code. Because the secured creditor did not have a security agreement which ran to it and contained a grant of a security interest, the debtor was able to avoid the creditor’s security interest under the strongarm clause.