Clarks' Secured Transactions Monthly : Mealey's : Legal News & Analysis

Clarks' Secured Transactions Monthly

December 18, 2020
Texas Federal Court Stay Lifted: CFPB Defends Gutted Payday Lending Final Rule While Pandemic Heightens Need For Small Dollar Loans

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.
December 18, 2020
Biden Administration Likely To Revisit New Trump CFPB Debt Collection Rule

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.
December 07, 2020
Only In New York: Depositary Banks Escape Liability From Conversion Claims Based On Forged Indorsements

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.
December 07, 2020
COVID 19: SBA Revises PPP $50,000 Loan Forgiveness Rules But Confusion Continues To Delay Processing Of Applications

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.
October 06, 2020
Should Dinosaur Fossils Be Classified As Minerals?

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
October 06, 2020
States Challenge OCC's New Interest Rate Transfer Rule

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.
September 15, 2020
Best Practices: Collateral Descriptions In UCC Financing Statements After Supreme Court Denies Cert. In Seventh Circuit's 180 Equipment Case

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.
September 15, 2020
OCC's Proposed "True Lender" Rule Symbiotic With Final Rule On Interest Rate Transfers

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.
August 19, 2020
Irrevocable Letter Of Credit Proves Invincible Against Conservator For A National Credit Union

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.
August 19, 2020
How Far Will Supreme Court Decision Finding CFPB Structure Unconstitutional Reverberate?

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.
August 19, 2020
Is Dodd-Frank UDAAP Becoming UDAP?

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.
July 20, 2020
Closer Look: OCC Final Rule Reacts To The Problematic Madden Decision On Interest Rate Transfers

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.
July 20, 2020
E-Signatures: A Primer For Navigating During COVID-19

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.
June 25, 2020
Legal Malpractice And Failure To File UCC Continuation Statements: Dealing With The Duties Imposed By The GA High Court 16 Years Later

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.
June 25, 2020
Oil And Gas Loans: Some Best Practices For Troubled Times

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.
June 24, 2020
COVID-19: Lawsuit Alleges Bait-And-Switch By Treasury, SBA In Loan Elgibility Guidance Adding To The Confusion Over PPP Forgiveness Rules

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.
June 05, 2020
Wire Transfers & Account Takeovers: Illinois Court Reads “Bank” Broadly To Include Futures Commission Merchants Under UCC 4A

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.
June 05, 2020
COVID-19: Exercise Due Diligence To Safegaurd Business Interruption Insurance Payments

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.
June 05, 2020
COVID-19: Fed Expands Municipal Liquidity Facility; Is Amending The US Bankruptcy Code Another Viable Tool?

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.
May 18, 2020
Case Law Stands Firm Granting Priority To Judgment Creditor As “Transferee” Of Funds In The Debtor’s Deposit Account

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.
May 18, 2020
Challenge To BofA’s Gating Policy On SBA Paycheck Protection Program Pending Before The 4th Circuit

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.
May 18, 2020
Set-Off Against Treasury Stimulus Checks Is Lawful But Not All Banks Are Going There: What Are The Basics To Consider?

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.
May 05, 2020
A Quick Look At Continuation Statements And The “Retroactive Lapse” Principle

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.
May 05, 2020
Mistaken Termination Statements Can Wipe Out Security Interests

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.
May 05, 2020
Factoring Of Structured Settlements; The Basics And Troublesome Issues

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.