As published in the NY Business Law Journal:
SUMMER 2018 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
The
members of the Banking Law Committee include banking, regulatory, and corporate
attorneys. We meet in connection with the Spring, Fall and Annual Meetings of
the Business Law Section. At the Spring Meeting on May 24, held at the Harvard
Club in Manhattan, we had presentations on Blockchain Technology and Banking
and covered:
•
Blockchain and ICO basics—what you need to know
•
Regulatory paradigm
•
Implications of blockchain and tokens on the banking industry
The
presenters, Blank Rome partners Michelle Gitlitz and Scott Wortman, enthralled
the members with an interactive and riveting discussion with ample time for questions.
Our next meeting is planned for October in conjunction with the Business Law
Section’s Fall meeting, where we will discuss cybersecurity and other relevant banking
issues.
- Tanweer Ansari, Chair
winter 2017 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
The
Banking Law Committee held a meeting on October 12, 2017 at the law offices of
Norton Rose Fulbright US LLP, in conjunction with the Fall meeting of the Business
Law Section. The Committee was addressed by Trevor Goering, CEO and co-founder
of Gotham Security, who specifically presented on the Equifax data breach and
all aspects of how it happened, its impact, and next steps. As October was National
Cybersecurity Awareness month and the Equifax breach affected well over 140
million consumers, this was a very timely presentation. Mr. Goering, assisted
by Ms. Blake Pearlstein, COO and cofounder of Gotham Security, was able to
offer a detailed analysis of the various components of the breach. Those in
attendance walked away with a chilling sense of how vulnerable all our data
really is to the “Dark Web” and other nefarious criminal elements. A copy of
the presentation was made available via Community to all members of the Banking
Law Committee.
- Tanweer Ansari, Chair
summer 2017 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
A Banking Law Committee meeting was held at the Harvard Club on May 12, 2017, in conjunction with the Section’s Spring Meeting. We had a strong turnout of Committee Members. The format of the meeting was set up as an interactive panel discussion on various “hot button” regulatory and legal issues.
Following the presentations, the Chair moderated a lively and open
conversation among the members and the presenters. Materials were distributed
to attendees in advance. The topics for discussion were as follows: President
Trump’s immigration-related Executive Orders and their effect on the provision
of banking services; the New York State Department of Financial Services’ Final
Rule imposing cybersecurity requirements on all entities it licenses or
oversees; and the US Court of
Appeals ruling (which has been stayed pending rehearing en banc)
holding the structure of the Consumer Financial Protection Bureau
unconstitutional, and its potential implications for the Bureau’s actions to
date. There was a spirited discussion on all topics, but in particular the
Immigration Order issue. Additionally, there was ancillary discussion about the
potential for regulatory reform under the Trump Administration. The Committee
will meet again during the Section’s Fall Meeting.
- Tanweer Ansari, Chair
winter 2016 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
A meeting of the Banking Law Committee was held at Gallet, Dreyer & Berkey LLP in New York, New York on November 10, 2016. This was our first formal meeting since May 2016 and we had a good turnout of Commit-tee Members both in person and via teleconference. The format of the meeting was an interactive roundtable discussion on various hot button regulatory and legal issues. Several committee members were assigned to present on the topics and then lead the conversation with the group. Materials were distributed in advance to attendees. The topics for discussion were as follows: NYS DFS Cyber-security Rules/Privacy Shield as it affects New York Businesses using EU Data; NYS DFS AML Rules; Zombie Housing Law; Consumer Foreclosure Bill of Rights; the Beneficial Ownership Rule (FINCEN); the CFPB Structure Ruling (PHH Case); and a spirited discussion of potential regulatory consequences of the presidential election. The members were able to reinforce the scope and impacts of the matters discussed and ultimately plan action items for the future. The Committee will meet again during the NYSBA Annual Meeting in January 2017.
- Tanweer Ansari, Chair
SUMMER 2016 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
A meeting of the Banking Law Committee was held during the NYSBA Annual Meeting in January; our theme was “Hot Topics for January 2016.” We were very fortunate to have Joy Feigenbaum from the New York State Department of Financial Services and Alan Lawitz from the Office of Children & Family Services discussing elder financial abuse and the state’s initiative to provide training sessions for financial professionals on effectively recognizing, preventing, and reporting elder financial abuse. Our panel also included Scott Wortman, who spoke about the Telephone Consumer Protection Act, recent FCC rulings regarding robo-calling, and relevant litigation. As those who attended will attest, it was a very lively discussion, especially with Joy and Alan, but they told me they very much enjoyed the give-and-take! Scott’s presentation was also well-received, and very informative—I now will monitor my cell robo-calls much more intensively.
A Banking Law Committee meeting was held on May 13, 2016, during the NYSBA Business Law Section spring meetings in New York, New York. The topic was “Regulatory Roundup 2016” and featured speakers from the legal divisions of the FDIC’s New York Office, the Office of the Comptroller of the Currency’s (OCC’s) New York Office and the Federal Reserve Bank of New York, along with the General Counsel and COO of the New York Bankers Association. The panelists discussed issues of importance to their agencies and the New York Bankers Association.
The audience was very attentive to the presentations and posed thoughtful questions. At the meeting, it was announced that the new chair of the committee beginning June 1 will be Tanweer Ansari, succeeding Kathleen Scott. The next Banking Law Committee meeting will be sched-uled sometime this fall.
- Kathleen Scott, Chair
WINTER 2015 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
The
Committee on Banking Law held a meeting on October 2, 2015, during the NYSBA
Business Law Section Fall Meeting in Tarrytown, New York. The topic was “AML
Compliance—Stories from the Front Lines,” and featured speakers from the FDIC’s
New York Office, the UN Federal Credit Union, NBT Bank and First National Bank
of Long Island. The bank panelists discussed their experiences as compliance
officers at NY banking institutions and the FDIC speaker spoke about current
AML topics. A lively discussion ensued between the panelists and the audience. The
next Banking Law Committee meeting is scheduled for January 27, 2016, during
the NYSBA Annual Meeting.
- Kathleen A. Scott, Chair
SUMMER 2015 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
A
meeting of the Banking Law Committee was held during NYSBA’s Annual Meeting
week on January 28, 2015. The theme for the meeting was cybersecurity, with a
panel consisting of Jay Hack, partner at Gallet, Dreyer & Berkey LLP; Sabra
Baum, Vice President and Senior Counsel at M&T Bank; Mark Clancy, Managing
Director for Technology Risk Management at The Depository Trust & Clearing
Corporation; Sean Reilly, Senior Vice President and Associate General Counsel
at The Clearing House Payments LLC; and myself. Topics covered included federal
bank regulations and guidance relating to data security; NY State data breach
laws applicable to all New York businesses; current schemes on cyberattacks and
what banks can do to protect their systems; federal resources available to
banks regarding cybersecurity, and how one bank is handling the almost-constant
attacks on its computer systems. There was a lively discussion among the
panelists and the audience and the speakers were kind enough to stay around
afterwards to speak with members who had additional questions.
The
spring meeting of the Banking Law Committee was held on May 15, 2015, in New
York City. The theme was legislative and regulatory updates and a panel
moderated by Kathleen Scott, Banking Law Committee chair, and consisting of
Ashby Hilsman, Regional Counsel for the FDIC, James Porreca (Assistant District
Counsel, OCC— Northeastern District), and Roberta Kotkin, General Counsel and
COO, New York Bankers Association, provided updates on various legislative and
regulatory initiatives. As always, there was a lively discussion among the
panel and the committee members.
The next committee meeting will take place during the Business Law
Section’s Fall Meeting in October
- Kathleen A. Scott, Chair
WINTER 2014 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
A
meeting of the Banking Law Committee was held during the Business Law Section
Fall Meeting, on September 11, 2014. Committee member Sabra Baum discussed some
of the pressing regulatory matters she has followed, highlighting cybersecurity,
virtual currency (bitcoin), payday lenders, and proposed Bank Secrecy Act
regulations that would require customer due diligence to be performed on beneficial
owners of legal entity customers, as well as on the customers themselves. The
theme for the panel discussion was “An Inside Look at the Regulators” with Sara
Kelsey, former General Counsel at the FDIC and former Deputy Superintendent and
Counsel at the former New York State Banking Department (predecessor of the current
Department of Financial Services), and Barbara Kent, former Acting Superintendent
of Banks and former Director of Consumer Affairs and Financial Products at the
New York State Banking Department. They each provided their views on various
regulatory and enforcement issues using the backdrop of recent events in the
banking industry such as the mortgage crisis. A lively discussion among the
attendees and the speakers ranged over a host of issues about regulations and
regulators. The discussion lasted far beyond the time allotted, and many
attendees wished it could have gone on far longer. So Ms. Kelsey and Ms. Kent
may be appearing again at another committee meeting in the foreseeable future.
The
next Banking Law Committee meeting was scheduled to be held during the Annual
Meeting of the New York State Bar Association on January 28, 2015. The agenda
has not yet been decided, but the members of the committee will be contacted
with information once it is available.
-- Kathleen A. Scott, Chair
SUMMER 2014 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
A
meeting of the Banking Law Committee was held during Annual Meeting week on
January 29, 2014. The theme for the meeting was community banking issues, and
senior officers from the New York offices of the Federal Deposit Insurance
Corporation and the Office of the Comptroller of the Currency and from the
Federal Reserve Bank of New York discussed several areas of particular concern
to community banks, including capital requirements, banking trends and the
Volcker Rule applicability to community banks. The members were not shy about
asking questions, and even after the formal part of the meeting was over, the
speakers were kind enough to stay around and speak with members who had
additional questions.
A
meeting also was held in conjunction with the Section’s May meeting in New York
City, featuring a panel discussion by key regulators and industry
representatives before a packed house. The speakers were Jonathan Rushdoony,
Regional Counsel of the Office of the Comptroller of the Currency, which
regulates national banks (OCC); Ashby Hilsman, Regional Counsel of the FDIC;
Greg Rozansky, an attorney with the New York Clearing House Association; and
Roberta Kotkin, General Counsel of the New York Bankers Association. Key topics
included cybersecurity; the OCC’s “heightened expectations” program, whereby large
banks will be expected to enhance their risk management framework, including
the adoption of the “three lines of defense” model (front line management,
compliance, and internal audit) as well as more vigorous Board oversight; and
more pro-consumer initiatives at the State and City level. Our next meeting is
scheduled for September at the Section’s annual Fall Meeting, to be held this
year at the Equinox in Manchester, Vermont.
Our
next meeting is scheduled for September at the Section’s annual Fall Meeting,
to be held this year at the Equinox in Manchester, Vermont.
-- Kathleen A. Scott, Chair
Winter 2013 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
The
chairmanship of the Banking Law Committee passed to me June 1, and I have big
shoes to fill—David Glass has been a great chair of the committee, and
fortunately he remains a member of the committee and has been of great assistance
helping me learn the ropes.
At the
October 3-5, 2013, Business Law Section Fall Meeting held at the Cranwell Resort
in Lenox, Massachusetts, a meeting of the members of the Banking Law Committee
(and anyone else who wished to attend) was held on Friday, October 4. The title
of the program was “Current Ethical Issues for Banking Law Practitioners,” and
we had as our distinguished guests Robert Mundheim and Robert Evans III, both
of Shearman & Sterling LLP and both experts on ethics issues. The panel and
attendees discussed several interesting hypotheticals, each of which raised
questions that many of the attendees had seen come up in their own practices.
This meeting also provided the opportunity to obtain those all-important Ethics
CLE credits that all New York lawyers need. We hope to have Messrs. Mundheim
and Evans present again at a future meeting..
The next
formal meeting of the Banking Law Committee will be held during the NYSBA
Annual Meeting in January 2014. Following up on comments made at the May
meeting, when a representative of the Federal Reserve Bank of New York spoke
about the FRB’s supervisory concerns regarding foreign and large domestic financial
institutions that it oversees, I am working at putting together a program at
the January meeting that focuses on supervisory issues for community banks,
with a panel of state and federal banking regulators to discuss those issues.
Suggestions have been made about having additional meetings during the
year that focus on current issues, and I am pursuing that suggestion and will
be surveying the committee members to determine the format and frequency of
such meetings, which we may be able to do via webcast.
-- Kathleen A. Scott, Chair
Summer 2013 NY BUSINESS LAW JOURNAL
BANKING LAW COMMITTEE
With the
never-ending barrage of new regulations, especially under Dodd-Frank, it has
been a busy year for the Banking Law Committee. In 2012 we liaised with the Association
of the Bar of the City of New York regarding that Association’s efforts to (finally)
bring New York, the presumptive leader in commercial law, into line with the
other 49 states by adopting an omnibus package of amendments to the Uniform
Commercial Code, many of which have been in place elsewhere for 20 years or more.
These would include key amendments to Articles 3 and 4 of the UCC, which govern
commercial paper and bank deposits and collections. A major sticking point for the
New York legislature in the 1990s was the concept of check truncation, whereby
banks are no longer required to return the paper checks to their customers, at
best a costly and labor-intensive process. The concern: how can grandma prove
that she paid the rent if she doesn’t get her cancelled check back? That
concern was effectively mooted by federal law, the Check 21 Act, in 2003, which
allowed all banking institutions to effect truncation by providing a substitute
check where required. The Committee members expressed support for the omnibus
package and recommended to the Section Executive Committee that it do likewise.
In
January, in conjunction with the NYSBA Annual Meeting, the Committee held a
well-attended meeting at which our guest speakers were Richard Charlton,
Counsel and Vice President of the Federal Reserve Bank of New York, and Roberta
Kotkin, General Counsel and Chief Operating Officer of the New York Bankers
Association. Mr. Charlton discussed the Federal Reserve’s ongoing
implementation of the Dodd-Frank Act through rule-making, highlighting the
difficulties presented in adapting the Act’s provisions to the many different
types of banking institutions, ranging from small community banks to large
foreign banks with U.S. operations. With respect to the latter, Mr. Charlton
focused on the Federal Reserve’s proposal to implement Dodd-Frank’s mandate for
heightened prudential standards by, among other things, requiring foreign
banking organizations to establish wellcapitalized intermediate holding
companies in the U.S. to hold their U.S. subsidiaries. Ms. Kotkin reviewed the NYBA’s
position on signify cant federal and state legislation and regulations
affecting banks, and discussed the efforts of NYBA’s member banks to assist in
recovery from Superstorm Sandy—for example, by providing a means to expedite
payment of insurance proceeds to homeowners where the bank’s endorsement of the
check is required because it holds the lien on the home.
Our May
meeting featured Jeffrey Ingber, senior vice president in the Financial
Institutions Group of the Federal Reserve Bank of New York. Mr. Ingber
discussed the Fed’s supervisory concerns regarding the foreign and large
domestic institutions it oversees, noting that it was attempting to be more of
a prudential regulator, rather than seeking to play “gotcha” in the bank
examinations process. There was a lively and interactive discussion. Mr. Ingber
pledged to line up a Fed colleague whose focus is more on community banks to
speak at our next meeting. With regret, I relinquished the Chair’s gavel as my
second three-year term came to an end. The good news is that the Committee
leadership is in good hands, as I will be succeeded by Kathleen Scott of Arnold
& Porter, an experienced and knowledgeable banking lawyer.
-- David L. Glass, Chair
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
