Thursday, October 27, 2011
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While any relief still has a long (and uncertain) path before it would be effective, on October 26, 2011, the House Financial Services Committee approved four bills (with bipartisan support) that would remove regulatory federal securities law obstacles to capital formation.

H.R. 1965 would, for banks and bank holding companies, raise the SEC registration threshold to 2,000 shareholders and the deregistration threshold to 1,200 shareholders.

H.R. 2167, the “Private Company Flexibility and Growth Act,” would raise the SEC registration threshold for all companies to 1,000 shareholders and would exclude accredited investors and certain employees from the definition of “held of record” for registration purposes.

H.R. 2940, the “Access to Capital for Job Creators Act,” would permit general solicitation and general advertising for private offerings conducted under Rule 506, so long as all purchasers were accredited investors.


Thursday, October 27, 2011
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On Monday, October 27, 2008, as the TARP Capital Purchase Plan was still very much in formation, was launched.  As we noted in our launch announcement, at that time the banking world was “being changed daily by forces outside our control and in ways unimaginable just months ago.” I don’t know that any of us had the foresight to think that three years later we would still be dealing with many of the same outside forces, but we’ve enjoyed the opportunity to continue to share our insights as we go forward.

As the parent of a human two year-old, I’m quite happy to at least have this site exit its “terrible twos.”  The site encountered some growing pains last year, but we’ve changed hosts, changed look, and driving forward.

Since its launch, has hosted over 127 thousand visitors, and has delivered 277 thousand page views.  Included in those visitors are a significant number of bank regulators and policy makers, including over 900 visits from the FDIC, 360 visits from the Treasury Department, 350 visits from the OCC, 290 visits from the US Senate, 260 visits from the U.S. House of Representatives, 160 visits from the Federal Reserve Board and 140 visits from the U.S. General Accounting Office.

As we noted in the beginning

There is no fee of any sort connected with this site or its usage – it is another example of the many ways we try to give back to the industry that has been so good to us in so many ways. We hope you expect this kind of effort and contribution from us, since we have always considered our clients to be our partners in our industry. We hope you will continue to look to us in good times and bad.

A central premise of our financial institutions group is that sharing information collected from all of our attorneys creates significant intellectual power and value for our clients and each other.  We look forward to continuing to share.

Monday, October 24, 2011
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The CFPB published its Supervision and Examination Manual (the “Manual”) on October 13, 2011, designed to provide CFPB examiners with direction on how to determine if providers of consumer financial products are complying with consumer protection laws. The CFPB’s press release states that the Manual incorporates procedures already used by other federal regulators. The Manual does simply recite certain interagency procedures, such as for fair lending examinations. At the same time, the Manual addresses new Dodd-Frank concepts, such as unfair, deceptive and abusive acts or practices.

The CFPB will use the Manual initially to supervise the more than 100 large banks, thrifts, and credit unions that are subject to the CFPB’s examination authority pursuant to the Dodd-Frank Act (those with total assets over $10 billion, as well as their affiliates). The Bureau’s examiners will also ultimately use the Manual to supervise non-depository consumer financial service companies (e.g., mortgage lenders), with the stated goal of promoting “fair, transparent, and competitive consumer financial markets where consumers can have access to credit and other products and services, and where providers can compete for their business on a level playing field where everyone has to play by the rules.”

The CFPB Examination Framework and Philosophy

While only certain entities will be subject to CFPB examination, the Manual outlines an examination approach that is illustrative of the Bureau’s bend on matters over which it has rulemaking authority. This is particular true of its view of its authority over matters it considers unfair, deceptive or abusive acts or practices (UDAAP).

Like other bank regulators, the CFPB will prepare for examinations by gathering and reviewing a wide array of regulatory and public data about an institution:  state and/or prudential regulator reports of examination and correspondence, enforcement actions, state licensing and registration information, complaint data, call reports, HMDA LARs, HAMP data, fair lending analyses, SEC or other securities-related filings, the institution’s website and advertising, and, among other things, “newspaper articles, web postings, or blogs that raise examination related issues.” The CFPB will then contact the institution about the examination and prepare its customized Information Request.


Friday, October 21, 2011
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No, nothing to worry about yet, though it may be confusing for some time. One bureaucratic consequence of the Dodd-Frank Act moving the various consumer protection laws and regulations under the jurisdiction of the Consumer Financial Protection Bureau (CFPB) is that they now must reissue the relevant regulations.

Referred to by CFPB insiders as the “restatement project,” the CFPB is preparing to reissue over 3,000 pages of regulations through approximately fourteen Federal Register notices. The reissued regulations will be changed to reflect jurisdictional changes and some scope changes, but they are not expected to change substantively at this time (although we will be watching). We expect publication of these reissued regulations to begin within days.

The possible source of confusion will be a new numbering system. The regulations will still be in Title 12 of the Code of Federal Regulations, but moved to Chapter X. We understand that most of the numbers will be unchanged after the decimal point, but the other numbers could be very different. So, for example, 12 CFR § 226.1 of Regulation Z could become 12 CFR § 1000.1. In some cases, however, due to rules of the Office of the Federal Register, new numbers will be required. For example, Regulation Z sections 226.5a and 226.5b could become 12 CFR § 10XX.40 and 12 CFR § 10XX.60.

None of this is all that earth shaking except to lawyers with nothing else to worry about. All those years memorizing regulation numbers for naught.

Friday, October 21, 2011
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Social Media and the National Labor Relations Act:  A Trap for Unwary Employers

The use of social media has become one of the most rapidly-changing areas in employment law today.  What most employers do not realize is that the National Labor Relations Board has become very active in policing both the substance of social media policies and the actions of employers in addressing social media concerns.  Please click here to read an overview of NLRB activity in the area of employee use of social media published by the Labor & Employment and Internet & New Media Client Service Groups on September 23, 2011.

Check It Out and Check It Off:  2012 Group Health Plan Checklist

While the Patient Protection and Affordable Care Act, as amended (“PPACA”), required significant design changes for group health plans in 2010 or 2011, some additional requirements must be implemented for 2012.  Please click here to read the Alert published by the Employee Benefits & Executive Compensation Client Service Group on September 7, 2011. 

IRS Establishes a Voluntary Classification Settlement Program

The IRS recently announced a new settlement program for employers with misclassified workers.  Under the new program, employers can get a significant reduction in their federal employment tax liability associated with past nonemployment treatment by agreeing to properly classify their workers for future tax period.  The announcement came on the heels of recent announcements that the IRS, Department of Labor and various state agencies are collaborating on examining worker misclassification issues.  To learn more about the new program, please click here to read the Alert published by the Employee Benefits & Executive Compensation Client Service Group on September 30, 2011.

Department of Labor Issues Final Rule Requiring Follow-On Contractors to Hire Their Predecessor’s Employees

The Department of Labor issued a final rule just before Labor Day that, in effect, will given certain employees now performing under Federal government service contracts employment for life or at least for as long as the government continues to contract for those services.  Although the rule does not take effect until the Federal Acquisition Regulation Council issues its complementary regulations, matters are sufficiently final that contractors should begin planning for how they are going to comply.  To learn more about this new regulation, click here to read the Alert published by the Government Contracts Team on September 8, 2011.

U.S. House Panel Hears Divergent Opinions on SRO Oversight of Investment Advisers

Fund managers and other investment advisers should be aware that Congress is now considering legislation that would significantly alter regulation of the nation’s registered investment advisers.  A key House subcommittee has heard widely divergent views on the proposed legislation entitled the “Investment Adviser Oversight Act of 2011.”  To learn more about the draft legislation, click here to read the Alert published by the White Collar Defense and Investigations Securities Litigation and Enforcement Client Service Groups on September 20, 2011.

New Patent Reform Bill Poised to Significantly Change U.S. Patent Law

On September 8, 2011, Congress approved the Leahy-Smith America Invents Act of 2011.  The Act materially alters a long history of patent law in the United States.   Among the provisions addressed by the Act are who is entitled to a patent (“first to file” versus “first to invent”) and who may file a “false marking” lawsuit.  To read more about how the Act alters patent law, please click here to read the Bulletin published by the Intellectual Property Client Service Group on September 12, 2011. 

FinCEN Issues Final Rule on Prepaid Access; Extends Compliance Date for Many Aspects of the Final Rule

New anti-money laundering regulations that directly impact retail business that issue or sell gift cards or other prepaid cards were issued by the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN),  The regulations require the collection and verification of customer information when certain prepaid cards are sold or reloaded.  To read an overview of the Final Rule, please click here for the Alert published by the Financial Institutions Client Service Group on September 6, 2011. The Final Rule was set to go into effect on September 27, but FinCEN announced that it has extended the compliance date for most aspects of the regulations.  For information on how the compliance dates changed, please click here to read the Alert published on September 12, 2011.

New Dual/Third Country National Rule Continues to Present Challenges

A new rule took effect in August which amended the International Traffic in Arms Regulations (ITAR) to include a new license exemption for the transfer of defense articles to dual/third country national employees of approved non-U.S. licensees under ITAR agreements.  To read about the new rule, please click here for International Regulatory Bulletin published September 28, 2011.

DDTC Updates its “Guidelines for Preparing Electronic Agreements” to Implement New Dual/Third Country National Rule

In August, DDTC updated its “Guidelines for Preparing Electronic Agreements” (the “Guidelines”) to reflect implementation of the new rule and provide guidance to exporters preparing ITAR agreements.  To learn more, please click here to read the International Regulatory Bulletin published September 28, 2011.

 Electronic Payment of Registration Fees

The Directorate of Defense Trade Controls (DDTC) issued an amendment to the International Traffic in Arms Regulations (ITAR) that requires a change in the method of payment for registration fees.  Effective September 26, 2011, all registration fees must be paid electronically via Automated Clearing House.  To read about the amendment, please click here for the International Regulatory Bulletin published September 15, 2011.

French Working Time for Executives:  Lump-Sum Remuneration Agreements Based on a Fixed Number of Working Days Per Year (so-called Forfaits-Jours)

The legal duration of work for employees in France is 35 hours per week, meaning that any hours required to be worked above this limit would normally be considered overtime.  Executives are, however, most often not subject to this limit.  For an outline of how the French Labor Code distinguishes between three types of executives, please click here to read the September 2011 Briefing published by the Paris Labor & Employment Client Service Group.

 The Agency Workers Regulations 2010

UK’s new Agency Workers Regulations come into force on 1 October 2011.  The regulations are intended to give agency workers the same basic employment rights and conditions as permanent staff employed directly by the relevant company.  To learn about the new regulations, please click here for the September 2011 Briefing published by the London Labour and Employment Client Service Group.

China Announces Legal Changes That May Broaden Power to Investigate Bribery

In August the National People’s Congress of the People’s Republic of China released the draft Criminal Procedure Law Amendment to the public for comment.  If passed, the amendment is expected to provide additional protection to the civil rights of accused parties.  However, critics say that the amendment would also provide authorities legal cover to utilize secret locations to detain subjects suspected of engaging in acts involving national security, terrorism, or other serious crimes which may include serious bribery.  To read about the amendment, please click here for the International Regulatory Bulletin published September 27, 2011.

Friday, October 21, 2011
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New investment under the Small Business Lending Fund ended on September 27, 2011, in accordance with its enabling legislation.  In the end, 332 institutions received over $4 billion in SBLF funds, and Treasury closed 97 deals worth $1 billion in the program’s final week of investment.  We have previously noted that recipient institutions were generally well-capitalized with low levels of non-performing assets.  While Treasury has published a version, we have developed our own interactive map of SBLF recipients:

Phoenix-based Western Alliance Bancorporation received the largest single investment under the program ($141 million).  More recipients were based in California (29) than anywhere else.  Only four entities based in Georgia received funding.  As one of those, Appalachian Community Enterprises, Inc., is a Community Development Loan Fund (CDLF), only three Georgia headquartered banks (two state-chartered and one national charter) received funding under the SBLF.

Pennsylvania entities did well under the program (23 recipients).  Pennsylvania had 208 FDIC-insured institutions reporting a total of $202 billion in total assets as of June 30, 2011 (compared to 246 institutions and $265 billion in total assets in Georgia).  While 73 Georgia banks have been closed since late 2000, only six Pennsylvania institutions have been closed during this time.  Pennsylvania has generally not faced the real estate-related asset quality problems that continue to plague many states.  In Florida, however, where 59 banks have failed since 2000, seventeen entities received SBLF funding. 

In that light, it is not clear to us why only three Georgia headquartered banks received SBLF funds. Based on Commissioner Braswell’s letter to Treasury Secretary Geithner, it may not be clear to anyone other than the Treasury.

In testimony before the Senate Small Business Committee on October 18, 2011, Geithner maintained that the SBLF has been a success.  Geithner argued that there were two reasons only $4 billion of the allocated $30 billion fund was disbursed:  (1) banks applied for only one-third of the available funds and (2) one-half of those that applied were not eligible to receive funding.


Wednesday, October 19, 2011
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FinCEN has released a proposed rulemaking that would require consumers holding prepaid cards that aggregate to more than $10,000 in value, to report such prepaid cards when crossing into or out of the U.S., in the same way they currently report cash, travelers checks and other monetary instruments. The notice of proposed rulemaking (NPRM) would add “tangible prepaid access devices” to the list of currency and monetary instruments that must be reported when transported, mailed or shipped into or out of the United States in aggregate amounts over $10,000.

Currently persons crossing into or out of the US must report cash and monetary instruments exceeding $10,000, using FinCEN Form 105, the Report of International Transportation of Currency or Monetary Instruments known as the “CMIR” form. The NPRM’s inclusion of tangible prepaid access devices as a type of monetary instrument applies only to the $10,000 CMIR filing obligation; it does not extend to other requirements, such as the $3,000 recordkeeping requirement applicable to monetary instruments.

Interestingly, however, the NPRM also acknowledges that FinCEN is only authorized to extend CMIR reporting to items similar to U.S. currency based on the legislative purpose behind BSA reporting, that is to facilitate “the traceability of currency and its equivalents and eliminating anonymous international flows of money.” To the extent prepaid cards are not the equivalent to currency, and do not provide for “anonymous international flows of money” arguably the extension of CMIR reporting should not apply.

This proposal appears to have only a limited direct impact on prepaid card issuers and program managers. However, it will impact cardholders directly, possibly with negative consequences for customer experience and satisfaction. The proposal may result in holders of prepaid cards feeling discriminated against and/or stigmatized as compared to holders of debit and credit cards, who do not need to report their associated funds nor their access to lines of credit. It may also result in increased inquiries from law enforcement to designated providers of prepaid access and/or issuing banks about the value of specific cards crossing the border as well as increased website traffic and calls to customer service from individuals checking card balances to determine whether reporting is required and for what amount.

What is a “tangible prepaid access device”?

The term “tangible prepaid access device” is defined as “any physical item that can be transported, mailed, or shipped into or out of the United States and the use of which is dedicated to obtaining access to prepaid funds or the value of funds by the possessor in any manner without regard to whom the prepaid access is issued.” (Emphasis added.) The value of a tangible prepaid access device for reporting purposes would be the amount of funds available to which the device provides access, at the time it is transported, mailed or shipped.


Friday, October 14, 2011
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By now, many bankers have experienced the following situation:  you have just left a management exit meeting with regulatory examiners, and you are stunned by the negative conclusions that the examiners have reached.  In the wake of this disappointment, many bankers wait for the examiners to meet with their board and issue the Report of Examination before putting “their side of the story” on the record in a written response to the Report of Examination.

While we always recommend that bankers point out any factual inaccuracies in a Report of Examination via a written response, we believe that bankers may be able to help themselves by presenting additional information before the Report of Examination is issued.  This approach may be particularly helpful if a bank believes its regulatory ratings are being downgraded as a result of inaccurate or incomplete findings by their examiners.  As stated in a recent article by SNL Financial (subscription required):

[Danny Payne, former commissioner of the Texas Department of Savings and Mortgage Lending and now an industry consultant,] said there may be instances where examiners have been overzealous or harsh in their recommendations or findings. “But before the reports are issued, the pre-report communication processes and negotiations between the bank and examiners usually result in a fair ruling,” he said. “By the time issues reach the enforcement order stage, all subjective debates and negotiations typically have been completed and decided.”

We have found that many disagreements with examiners can be resolved through the presentation of additional information.  At the very least, these discussions help bankers gain further understanding of the analysis by examiners.

As we move further into this economic cycle, we are seeing more “borderline” cases where presenting details to examiners can make a difference in the conclusions reached by examiners.  As a result, we encourage bankers to communicate openly with examiners about the condition of their banks.  If you would like to discuss these concepts, please contact any member of our Bryan Cave financial institutions group.

Friday, October 14, 2011
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The Consumer Financial Protection Bureau (CFPB) has moved into its fourth round of testing of a new consumer mortgage loan disclosure.  Acting under the mandate of the Dodd-Frank Act, the CFPB is preparing a single, integrated disclosure to address the disclosure requirements of both the Truth in Lending Act and Real Estate Settlement Procedures Act.

The specific focus of this fourth round of testing is comparison shopping.  Consumers and the lending industry have been asked to compare two different types of loan products using the same version of the form.  The CFPB states that it wants to be sure that the disclosure actually helps consumers to understand the features of competing loan products, from the overall loan amount to estimates of tax and insurance costs.

The CFPB’s efforts in this area have generally met with approval from all interested parties.  The proposed form is more clear, concise and informative than either the existing TILA or RESPA disclosures.  For example, all of the useless “seller’s column” and “buyer’s column” information on the RESPA good faith estimate has been eliminated in favor of total dollar amounts for the services the consumer can shop for and for the services the consumer cannot shop for.  Implementing the new requirements will require systems changes, but we might finally arrive at a disclosure that eliminates useless information, reconciles the differences between TILA and RESPA, and that is easier to explain to borrowers.

Past efforts to reconcile TILA and RESPA disclosures were hampered by the fact that the Federal Reserve had primary regulatory authority for TILA and the Department of Housing and Urban Development had primary authority for RESPA.  The Dodd-Frank Act removed this roadblock by transferring these powers to the Bureau.


Thursday, October 13, 2011
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Each year it seems that someone or other will comment on the “green shoots” that seemingly presage the end of the banking crisis. More often than not, the green shoots were simply the product of an overactive imagination.

There was recent news from the FDIC though that I think qualifies pretty strongly as green shoots material.  On September 14 the FDIC announced that it will be closing down its Midwest Temporary Satellite Office located in Schaumburg, IL toward the end of September 2012. The FDIC had previously indicated that the office would remain open until the end of the second quarter of 2013. The FDIC had announced earlier this year that its West Coast Satellite Office will close January 30, 2012.

The Southeast Temporary Satellite Office located in Jacksonville is theoretically scheduled to stay open until the end of 2013 due to the larger number of bank receiverships located across Georgia and Florida. I believe, however, there is a fair chance that the late 2013 date will, in fact, be moved up closer to early 2013 or even late 2012 based upon a review of the latest CALL Reports. While there are still a fair number of troubled banks moving through the FDIC pipeline toward receivership the numbers of troubled banks are definitely in the decline.

There is a corresponding decline in the number of new problem credits banks are seeing. Whereas a year ago bank special assets departments were bringing in two new credits for each one they resolved, now the ratio is one to one or even less. There is also much more internal pressure at institutions to rehabilitate credits if possible so that they can be moved out of special assets and back to the line.