Tuesday, November 29, 2022

August 2010 Legal Update

Final S.A.F.E. Act Rule Adopted

School Warrants – A Primer
Oklahoma H.B. 2936 Increases Fees for Compliance with State-Court Subpoenas Effective 11/1/2010
HOEPA Dollar Trigger Increased Effective 1/1/2011

Compliance Dates Roundup
 

 

August 2010

 

For more information on any of the topics contained in this Legal Update, please contact Byron Linkous or Pauli Loeffler.

·       Final S.A.F.E. Act Rule Adopted

·       School Warrants – A Primer

·       Oklahoma H.B. 2936 Increases Fees for Compliance with State-Court Subpoenas Effective 11/1/2010

·       HOEPA Dollar Trigger Increased Effective 1/1/2011

·       Compliance Dates Roundup

 

 

Final S.A.F.E. Act Rule Adopted

Byron’s Quick Hit: The federal regulators have published a final rule regarding registration of mortgage loan originators under the S.A.F.E. Act. Banks should act soon to ensure timely compliance with the requirements described in this article for adoption of policies and procedures required by the final rule. The final rule becomes effective October 1, 2010. However, the regulators have not yet determined when the federal registry will come online. Once it becomes available, Oklahoma banks and their employees who are mortgage loan originators will have 180 days to register under the new system. The information required for registration is discussed below.        

This is the fifth time we have provided a summary or update on the S.A.F.E. Act here in the Legal Update. Rather than ask you, the reader, to go back and find and read four previous editions of the Legal Update, I think it would be best to provide somewhat of a comprehensive discussion of the topic. Further, despite the fact that the federal regulators have adopted a final rule, there remains one very important question to be answered before banks can fully comply with the S.A.F.E. Act and the final rule discussed here: When will the federal registry be available? The final rule indicates that the federal registry will not be available until at least January 2011. The federal regulators will make another announcement in advance of the federal registry coming online. Once the federal registry is available, banks and mortgage loan originators will have 180 days to get registered.

The Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act)

 The Secure and Fair Enforcement for Mortgage Licensing Act, (the “S.A.F.E. Act”) is part of the Housing and Economic Recovery Act of 2008, which was signed into law on July 1, 2008. The stated purpose of the S.A.F.E. Act was to enhance consumer protection by requiring the states to establish minimum standards for mortgage loan originators and by creating a nationwide registry of mortgage loan originators. All states were required to provide for registration and licensing of mortgage loan originators by July 1, 2009 (or by July 1, 2010 if the state’s legislature only meets biennially). Oklahoma complied by enacting S.B. 1062 on May 12, 2009. (the “OK S.A.F.E Act”). The Federal S.A.F.E. Act requires mortgage loan originators employed by federally-regulated depository institutions to be registered, to maintain annual registration and to obtain a unique identifier. 

Although the Federal S.A.F.E. Act provided for the creation of a Federal registration system and further required that the system be implemented by July 29, 2009, the federal regulators are still in the process of fulfilling this requirement. The most recent development in this effort is the adoption of a joint final rule by the OCC, Federal Reserve Board, FDIC, OTS, Farm Credit Administration and National Credit Union Administration on July 28, 2010. The final rule is published at 75 F.R. 44656 (the “Final Rule”)

 The Federal S.A.F.E Act and the OK S.A.F.E Act both provide for a unique mortgage loan originator identifier, fingerprint submission for purposes of a criminal history background check, and for provision of mortgage loan originators’ personal history and experience information. Both Acts contain provisions that exempt individuals who in the prior 12 months have acted as a loan originator for five or fewer residential mortgages. However, mortgage loan originators who are subject to the OK S.A.F.E. Act are required to be licensed by the State of Oklahoma. There are substantial additional burdens on state licensees, including minimum education requirements.

(Non-)Applicability of the OK S.A.F.E. Act to Oklahoma Banks

The good news has always been that mortgage loan originators that are employed by Oklahoma banks AND that register under the federal registry are EXEMPT from all provisions the Oklahoma S.A.F.E. Act. Keep in mind that the federal S.A.F.E. Act required implementation of the federal registry by July 29, 2009. The bad news is that the federal registry is still not available. This creates a potential gap in the exemption provided by the Oklahoma S.A.F.E. Act, because licensing under the Oklahoma S.A.F.E. Act would otherwise be required by July 31, 2010. There can be little doubt that the Oklahoma legislature never intended to provide coverage of employees of federally-regulated financial institutions, as the federal S.A.F.E. Act required that the federal registry be operation a full year before the OK S.A.F.E. Act would require licensing. Because of the non-compliance of the federal regulators in timely implementing the federal registry, there is a potential gap in the coverage of the exemption from the OK S.A.F.E. Act.

          I recently reached out to the Roy John Martin, General Counsel for the Oklahoma Department of Consumer Credit, to confirm that despite the fact that the federal registry is not yet available, mortgage loan originators that work for Oklahoma banks are not subject to the Oklahoma S.A.F.E. Act. Mr. Martin was kind enough to confirm that:   “Even though the federal registration system is not available at this time, loan originators employed by banks are not required to obtain a license from the Department of Consumer Credit.” Although I would rather the statute did not contain this potential lapse in coverage, this statement goes a long way toward making me comfortable advising Oklahoma banks that they can wait until the federal registry comes on line to do anything about registering under the S.A.F.E. Act.

The Final Rule

          The Final Rule provides an effective date of October 1, 2010. Banks are required to comply with all provisions of the Final Rule by October 1, 2010, except for the registration requirements. Thus, banks should begin acting immediately to adopt the policies and procedures required by the Final Rule.

October 1 is not the date that the federal registry will be available. That date is still to be announced, although the Final Rule indicates that the federal regulators do not expect the federal registry to be operation until at least January 2011. The federal regulators will make a formal advance announcement regarding the date when the federal registry will begin to accept registrations. 

          Once the federal registry is operational, employees of depository institutions will have 180 days to register. Prior to the federal registry coming on-line and during the 180-day period provided for registration, employees of depository institutions will be allowed to continue to originate residential mortgage loans. Although bank employees will not be able to register until the federal registry is operational, banks can begin implementing the other provisions of the Final Rule, including development of policies and procedures, training of employees, implementations of systems and controls and the gathering of information needed for registration.

Note: For purposes of this discussion, I will refer to the Final Rule as applicable to National Banks, as adopted by the OCC at 12 C.F.R. Part 34. However, there are corresponding provisions applicable to state-member banks in the Federal Reserve (12 C.F.R. Part 208), international banking operations (12 C.F.R. Part 211), state non-member banks (12 C.F.R. Part 365), and federal savings associations (12 C.F.R. Part 563), as well as institutions covered by the Farm Credit Administration (12 C.F.R. Part 610) and Credit Unions (12 C.F.R. Parts 741 and 761).

Who Can Register Under the federal registry?

          Who can register under the federal registry is important. Despite the requirements placed on bank-employee mortgage loan originators, those who are required to register receive the important exemption from licensing required under the OK S.A.F.E. Act. Generally, the registration requirement applies to state and federal banks, federal savings associations, and their respective employees who are mortgage loan originators. IMPORTANTLY, the definition of “depository institution” DOES NOT include holding companies or their non-depository subsidiaries. Thus, employees of bank holding companies or their non-depository subsidiaries who are acting as a mortgage loan originator in Oklahoma will be subject to the licensing requirements of the OK S.A.F.E. Act. Any bank holding company with employees in this category may want to give serious consideration to moving any such employees to the employment of the bank itself, rather than the holding company, or any non-depository subsidiary.

Who Is A Mortgage Loan Originator? (12 C.F.R. § 34.102)

          The Final Rule defines a “mortgage loan originator” as “an individual who: (i) Takes a residential mortgage loan application; and (ii) Offers or negotiates terms of a residential mortgage loan for compensation or gain.” However, the terms “mortgage loan originator” DOES NOT include:

(i) individuals that perform “purely administrative or clerical tasks.” The phrase “administrative or clerical tasks” is further defined as “the receipt, collection, and distribution of information common for the processing or underwriting of a loan in the residential mortgage industry and communication with a consumer to obtain information necessary for the processing or underwriting of a residential mortgage loan”;

(ii) individuals who perform only real estate brokerage activities and are duly licensed;

(iii) individuals or entities solely involved in extensions of credit related to timeshare plans; and

(iv) employees engaged in loan modifications, assumptions, or mortgage loan servicing.

          There is also a voluntary de minimis exception to the registration requirement under 12 C.F.R. § 34.101(c)(2), for employees who have never been registered or licensed as a mortgage loan originator, if the employee has acted as a mortgage loan originator for 5 or fewer residential mortgage loans in the previous 12 months. However, banks are specifically prohibited from manipulating their practices to take advantage of the de minimis exception (for example, by spreading originations among many employees in order to circumvent the registration requirement).

Registration Requirement (12 C.F.R. § 34.103(a))

          The Final Rule contains registration requirements that apply both to mortgage loan originators AND on the depository institutions that employ them. Mortgage loan originators must register under the federal registry and obtain a “unique identifier” under the registry. Note that an individual’s unique identifier is meant to stay with the individual employee, and would, for example, remain the same if a mortgage loan originator were to change employment from one bank to another. In addition, although the registration requirement applies to the individual mortgage loan originator, the mortgage loan originator’s employer is required to ensure that its employees who are required to register do so. A registration with the federal registry, or an updated registration, as described below, is effective when the federal registry transmits notification to the mortgage loan originator that the mortgage loan originator is registered. See 12 C.F.R. § 34.103(c). The fees associated with registration have not yet been determined.

Annual Renewal/Update Requirement (12 C.F.R. § 34.103(b))

          After registering, a mortgage loan originator is required to renew his registration annually, or the mortgage loan originator’s registration will become inactive, and the person will be prohibited from acting as a mortgage loan originator until he re-registers. As part of this process, the mortgage loan originator will be required to confirm the accuracy of the previously entered information as of the renewal date. Further, apart from the annual renewal, mortgage loan originators are required to update their information in the federal registry within 30 days of (i) a change in the name of the registrant; (ii) ceasing to be an employee of a bank; or (iii) if the person is convicted of a criminal offense or is subject to a civil trial verdict or settlement involving a finding of dishonesty or fraud.

          Generally, a mortgage loan originator that is already registered under the federal registry need not re-register upon changing employment. However, the mortgage loan originator is required to update his information under the federal registry. Further, the mortgage loan originator will have to provide new fingerprints for a new background check, unless the mortgage loan originator has fingerprints on file with the federal registry that are less than 3 years old. A mortgage loan originator who changes bank employers will be considered inactive until the mortgage loan originator updates his information in the federal registry AND his new employer acknowledges employing the mortgage loan originator through the federal registry. See 12 CFR § 34.103(a)(4).

Information Required from Registrant (12 C.F.R. § 34.103(d))

          In order to register under the federal registry, a mortgage loan originator must submit: (i) basic identification information, including name, other names used, address and contact information, address of the registrant’s principal business location and contact information, social security number, gender, as well as date and place of birth; (ii) financial services employment history for 10 years prior to registration or renewal, as well as the date that the mortgage loan originator became an employee of its present depository institution-employer; (iii) convictions of any criminal offense involving dishonesty, breach of trust, or money laundering, or any agreement to enter into a pretrial diversion or similar program in connection with the prosecution of such an offense; (iv) civil judicial actions against the registrant in connection with financial services related activities, dismissals with settlements, or judicial findings that the registrant violated financial services-related statutes or regulations (but not including actions dismissed with no settlement agreement); (v) actions or orders by a State or Federal regulatory agency or foreign financial regulatory authority that (1) made a finding that the registrant made a false, dishonest, unfair or unethical statement, (2) was involved in a violation of a financial services-related regulation or statute, or was a cause of a financial services-related business having been denied, lost, or suspended its authorization to do business, (3) have been entered against the registrant in connection with a financial services-related activity, (4) denied, suspended or revoked the registrant’s registration or license to engage in a financial services-related activity, or disciplined the registrant or otherwise restricted the activities of the registrant, or (5) barred the registrant from association with an entity or officers regulated by the agency or from engaging in a financial services-related business; (vi) final orders issued by a State or Federal regulatory agency or foreign financial regulatory authority based on violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct; (vii) any revocation or suspension of the registrant’s authorization to act as an attorney, accountant, or State or Federal contractor; and (viii) information regarding customer-initiated financial services-related arbitration or civil action against the registrant that required action, including settlements, or which resulted in a judgment. In addition to the above information, a registrant is required to submit his fingerprints in a form appropriate for submission to the Federal Bureau of Investigations and other state and local law enforcement, for the purpose of a criminal background check.

          Finally, a registrant is required to (i) attest to the correctness of all information submitted to the federal registry, and to provide authorization for the federal registry and the registrant’s employer to obtain all information related to any administrative, civil or criminal findings to which the registrant is a party; and (ii) must authorize the federal registry to make the following information available to the public: registrant’s name, current employer, current principal place of business and contact, 10 years of relevant employment information as well as information regarding criminal and civil history involving acts of dishonesty, fraud, or suspension or revocation of licenses or permits.

Information Required from the Depository Institution (12 C.F.R. § 34.103(d) and (e))

           A depository institution may, but is not required to, assume responsibility for providing a registrant’s information to the federal registry. Any person performing this task on behalf of the depository institution is referred to in the Final Rule as a “systems administrator”. An institution may have more than one system administrator. However, a systems administrator may not also be a mortgage loan originator (unless (i) the institution has 10 or fewer full time equivalent employees and the (ii) the institution is not a subsidiary of a federally regulated institution). Even if the bank assumes this responsibility, the registrant is still required to provide the attestation and authorizations discussed in the preceding paragraph.

          In addition, all depository institutions who employ at least one mortgage loan originator are required to submit the following “base record” information in connection with the registration of mortgage loan originators: the institution’s name, main office address, primary Federal regulator, Employer Identification Number, primary point of contact information, contact information for “system administrators”, and if the institution is a subsidiary, indicate that it is a subsidiary and the name of its parent-institution, and the Research Statistics Supervision and Discount (RSSD) number issued to the institution by the Federal Reserve Board. Depository institutions must update any changed information within 30 days.

          Depository institutions must also submit information on all mortgage loan originators it employs. In this regard, the bank must (i) confirm that it employs each registrant, and (ii) within 30 days of the date a registrant ceases to be employed, provide notification that it no longer employs the registrant, as well as the date the employment stopped.

          In addition, a depository institution is required to make the unique identifiers provided by the federal registry of its mortgage loan originator-employees available to consumers in a manner and method practicable to the institution. Also, a mortgage loan originator is required to provide his identifier to a consumer (i) upon request, (ii) before acting as a mortgage loan originator; and (iii) through the originator’s initial written communication with a consumer, if any, whether on paper or electronically. See 12 C.F.R. § 34.105.

Depository Institutions Must Develop Policies and Procedures (12 C.F.R. § 34.104)

          All depository institutions that employ one or more mortgage loan originators are required to adopt and follow written policies and procedures that are designed to ensure compliance with the requirements of the Final Rule. This requirement applies even if the bank only has mortgage loan originators that are not required to register because of the de minimis exception discussed above. A bank’s policies and procedures must be “appropriate to the nature, size, complexity, and scope of the mortgage lending activities of the bank.” The following are minimum requirements for acceptable policies and procedures:

(1) Establishment of a process for identifying which employees of the bank are required to be registered mortgage loan originators;

(2) A requirement that all employees of the bank who are mortgage loan originators be informed of the registration requirements of the S.A.F.E. Act and the Final Rule, and that all such employees be instructed on how to comply with the requirements of the Act and the Final Rule;

(3) Establishment of procedures to comply with the requirements of 12 C.F.R. § 34.105 (discussed above, requiring notice to consumers by the bank and the mortgage loan originator of the mortgage loan originator’s unique identifier);

(4) Establishment of reasonable procedures for confirming the adequacy and accuracy of employee registrations with the federal registry, including updates and renewals, by comparison with the bank’s records;

(5) Establishment of reasonable procedures and tracking systems for monitoring compliance with registration and renewal requirements and procedures;

(6) Provision for independent testing for compliance with the Final Rule, to be conducted at least annually by bank personnel or by an outside party;

(7) Provision for appropriate action in the case of any employee who fails to comply with the registration requirements of the S.A.F.E. Act, the Final Rule, or the bank’s policies and procedures related to the S.A.F.E. Act, including prohibiting an employee from acting as a mortgage loan originator or other appropriate disciplinary actions;

(8) Establishment of a process for reviewing employee criminal history background reports received pursuant to the Final Rule, including taking appropriate action, maintaining records of such reports and actions taken with respect to applicable employees; and

(9) Establishment of procedures to ensure that any third party with which the bank has arrangements related to mortgage loan origination has policies and procedures in place to comply with the S.A.F.E. Act, including appropriate licensing and/or registration of individuals acting as mortgage loan originators.

Conclusion

          Oklahoma banks should begin working soon to ensure they have adopted the policies and procedures required under the Final Rule by October 1, 2010. As soon as there in an announcement of the date for the federal registry’s accepting registrations, we will announce it here.

School Warrants – A Primer

          I want to offer a special note of thanks to Pauli for tackling this prickly issue that only comes up periodically and for which she has had prior experience. But, if it comes up for your bank, this is an important topic. – Byron Linkous       

In any given year, the OBA Legal staff generally receives only two or three questions bearing on some aspect of school warrants, so it did not seem that there was a crying need for these to be addressed in the Legal Update. But after receiving three calls within a one week period dealing with the subject combined with the fact that some school districts have had and will have budget shortfalls, it seemed that the time had come to examine this topic. – Pauli Loeffler.

          Let’s start with the basics: school districts receive their funds from county ad valorem taxes. If the taxes are not timely paid or if property values drop, school funding is impaired.

          In Oklahoma’s Title 70, we find § 5-135. This section provides a detailed system that must be followed for initiating, recording and paying all purchases, salaries, wages and contractual obligations from funds under the control of the board of education. This system involves purchase orders, itemized invoices and school warrants. Actually, the requirement that warrants be used to make payments from public funds is found in Tit. 62 O.S. §471. This section provides: 

A. Except as provided in . . . subsection B of this section. All public funds of any county or of any subdivision thereof shall be disbursed only in the payment of legal warrants . . . . 

Subsection B has provisions that allow the board of county commissioners to issue a negotiable instrument that is both a warrant and a check and is denoted as such on its face. However, the treasurer for the school district may only issue this hybrid warrant/check in connection to the sinking and investment funds. By the way, unless the board for a school district chooses its own local treasurer, the county treasurer IS the treasurer for the school district.

          What exactly is a “legal” warrant and when may it be paid? Tit. 70 O.S. § 5-115 gives us part of the answer:

 F. Except as otherwise provided by law, no treasurer of any district shall pay out school district funds in the care of the treasurer except upon warrants signed by the proper school district officials authorized by the law to sign such warrants . . . .

G. The board of education shall, each month, set aside funds to an operating account . . . and to an investment account.

So far so good, but in order to get the full picture, we will have to take an in-depth look at § 5-135, particularly the following subsection:

H. The treasurer shall register the warrant or check in the warrant or check register, charging the appropriation account and crediting the warrants or checks outstanding account of the designated fund. Provided, no warrant or check shall be registered in excess of the appropriation account’s balance. All warrants or checks shall be registered in the order of their issuance. Voided warrants or checks shall be registered and filed with the treasurer. The treasurer shall sign each warrant or check through individual signature or approved facsimile showing its registration date and, if issuing a warrant, shall state whether it is payable or nonpayable. When a warrant or check is paid, the treasurer shall maintain evidence the warrant or check has been processed and paid.

          What this subsection literally says is “the warrants against each fund must be paid in the order of their issue, and warrants are payable only when there are sufficient appropriated funds in the designated account.” Thus, if a school has both a building fund and a general fund, there would be one set of warrants on the building fund, and a different set of warrants on the general fund. The bank could pay the warrants on the building fund as money became available in the building fund despite the fact that older warrants remained outstanding on the general fund since these cannot draw on the building fund as a source of payment. Similarly, the bank could pay warrants on the general fund as money became available in the general fund regardless of how long various warrants have been outstanding on the building fund. But within each fund, the warrants must be numbered in the order issued and must be paid in numerical order as funds become available in that particular fund. 

          What happens if there is a shortfall in funding that cannot be straightened out by June 30th, the end of the fiscal year? In that case, the school district has no choice but to issue nonpayable warrants. When this happens and the bank pays these nonpayable warrants, it has, in essence, bought them.  So now we have to consider what is the worst that can happen to the bank (i.e., what would be the absolute slowest and least favorable terms on which the bank can possibly be paid for these warrants)?

          When a warrant is nonpayable (i.e., insufficient cash on hand to pay the warrant), it must draw interest from and after registration at a rate not to exceed 5% as set by the board of county commissioners. Interest will continue to accrue on the warrant until 30 days after publication and posting of notices that the warrant is now payable. Thus a bank that buys a nonpayable warrant will at least earn interest during the period it is nonpayable due to insufficiency of funds (Tit. 62 O.S. § 554, § 475).

          I also need to point out that Tit. 70 O.S. § 5-115b allows a school district to enter into what is basically a line of credit agreement with the bank to cover nonpayable warrants:

If a check or warrant cannot be paid for want of sufficient funds, a district may enter into an agreement not to extend beyond the current fiscal year with the depository bank to honor payment of these checks at an annual rate of interest as negotiated by the district and depository bank, which shall not exceed a rate equal to five percent (5%) above the average United States Treasury Bill rate of the preceding calendar year as determined by the State Treasurer on the first regular business day of each year.

          If the warrant remains nonpayable after the fiscal year in which it was issued ends, the bank may sue to obtain payment. The statute of limitations to obtain payment is found in Tit. 62 O.S. Section § 482 states:

. . . [A]ny and all warrants issued in payment of obligations of counties, townships, cities, towns and other municipal subdivisions or corporations of this state, shall as to time of payment, become due one (1) year after the close of the fiscal year for which the same was issued, and action thereon may be commenced in any court of competent jurisdiction to enforce the liability evidenced thereby. Unless action be commenced by the filing of suit thereon and service of summons by the aforesaid due date, the same shall be forever thereafter barred, and it shall not be necessary that such lapse of time be asserted as a defense in any such action in order that the defendant be relieved of liability thereon.

In other words, for any warrant issued between July 1, 2009 and June 30, 2010, suit must be brought not later than June 30, 2011. Once obtained, the judgment draws interest at the statutory rate.

          A judgment against a school district becomes an obligation of the county. Under Tit. 19 O.S. § 6, the judgment must be satisfied by:

. . . [A] tax sufficient to pay same shall be levied and collected in like manner as other county taxes, and when collected shall be paid by the county treasurer on the delivery of a proper receipt and the signing of an acknowledgment on the court record of said judgment, by the party in whose favor the judgment was rendered, or by his attorney of record, that same has been satisfied.

In other words, property taxes will be raised automatically in an amount sufficient to pay off the judgment under this statute. 

          In summary, the worst case scenario when a bank pays the nonpayable warrant is that the warrant earns interest as long as it remains nonpayable by statute or by agreement under § 5-115b; if the bank must sue, it will earn interest on the judgment until paid; and the bank will ultimately be paid by the taxing authority for the school district. Since a warrant is not a negotiable instrument like a note or draft, the bank does not have a security interest in the warrant, nor does the have the right of set off against any school funds it has on deposit. But short of the school district filing for protection under Chapter 9 of the Bankruptcy Code, payment is pretty much guaranteed — eventually.

          Finally, I would point out that nothing requires the bank to accept and pay warrants other than as provided by agreement between the bank and the school district. The bank could stop doing it altogether. This may cause a public relations problem for your bank, but the bank may have a bigger public relations issue in “suing” the school district on the warrants and getting a judgment that forces everyone’s property taxes to be increased in order to pay the bank back.

Oklahoma H.B. 2936 Increases Fees for Compliance with State-Court Subpoenas Effective 11/1/2010

          Readers may recall that Reg S was updated effective January 1, 2010, to increase the fees that banks may charge for compliance with federal subpoenas. See December 2009 Legal Update. I noted at that time that in the past the Oklahoma legislature has followed suit with increases in Reg S, by increasing the corresponding fees at 6 Okla. Stat. § 2206, which governs fees that banks may charge for compliance with Oklahoma governmental authority requests for documents, including state-court subpoenas. That was our expectation. However, in these tough economic times, it took some convincing to persuade Oklahoma lawmakers that a fee increase was appropriate. 

Despite the fact that Section 2206 speaks in terms of charging fees for compliance with Oklahoma governmental authorities, what is not evident on the face of the statute is that the primary application of this statute is to govern the costs that can be charged relating to responding to subpoenas issued by Oklahoma courts. Unless the State is a party to the action in question (e.g., criminal prosecutions), the State does not bear the costs of the document charges, rather it cost is borne by the litigant requesting the documents.

          After much wrangling, H.B. 2936 was passed and signed into law. The new fee schedule applies beginning on November 1, 2010. The amounts chargeable under revised Section 2206 are as follows:

·        Photocopies remain unchanged at $.25 per page;

·        Costs of photographs, films, computer tapes and other materials remain at actual cost;

·        Costs for search and processing time have been increased, as follows:

Clerical/technical employees—from $11/hour to no more than $22/hour (chargeable by the quarter hour)

Manager/supervisory employees—from $17/hour to no more than $30/hour (chargeable by the quarter hour)

·        Necessary, directly incurred transportation costs to transport personnel to locate and retrieve documents and to deliver the documents where required are chargeable at actual costs

·        Other necessarily incurred direct costs also remain chargeable at the actual cost incurred by the bank.

There remain some important differences between Section 2206 and Reg S. Unlike Reg S, which added a new category of employee for “computer support specialist” and which was chargeable at the same rate as management personnel, Section 2206 contains no such new category. Thus, a computer specialist is likely to be considered a “technical employee” and only chargeable at the lower rate of $22 per hour. The other significant issue for Section 2206 is the addition of the language “no more than” in front of the hourly rate for personnel. There is nothing in the statute that indicates that a bank would be prohibited from charging the full rate, even if the employee involved is paid significantly less than the hourly rate. However, I wouldn’t put it past some of my legal colleagues to raise an argument that the bank needs to reveal the hourly rate actually paid to the employee and use that rate instead of the highest allowable rate, if the actual rate is lower. I feel comfortable in advising banks that they are authorized to charge the highest amount allowed in the statute. However, when you get a lawyer fussing at you about it (and you know you will), it may not be worth your time to argue about it.

HOEPA Dollar Trigger Increased Effective 1/1/2011

          The Federal Reserve Board annually adjusts the dollar amount that triggers application of the Home Ownership and Equity Protection Act of 1994 (HOEPA). HOEPA applies to home-secured loans in which either (a) interest rates are high enough to trip a high-interest rate trigger; or (b) the total points and fees payable by the consumer at or before loan consummation exceed the greater of (i) $400, or (ii) 8% of the total loan amount. The original $400 figure is indexed to inflation and changes annually. On July 30, 2010, the Federal Reserve Board announced that the adjusted dollar amount for 2011 will be $592. Loans that trigger HOEPA coverage are subject to substantial additional regulatory burdens for the lender under Reg Z, Sections 226.32 and 226.34.         

Compliance Dates Roundup

6/22/2010 – Deadline to Post Notice of Employees Right to Organize Under NLRA (for banks that have “government contracts”) (See June 2010 Legal Update)

6/30/2010 – TAG Program Expiration for Banks that Opted Out (See May 2010 Legal Update)

7/1/2010 – Deadline to comply with new Reg E Opt-in Requirement for Overdraft Protection for ATM and One-Time Debit Card Transactions (See December 2009 Legal Update and June 2010 Legal Update)

7/1/2010 – Deadline to comply with new Reg Z Changes to Open-End Credit (See March 2010 Legal Update)

7/1/2010 – Deadline to comply with new regulations under Fair and Accurate Credit Transactions Act (“FACT Act”) (See March 2010 Legal Update)

8/22/2010 – Certain TILA/Reg Z Credit Card Act Provisions Become Effective (including reasonableness/proportionality of penalty fees/charges and re-evaluation of rate increases) (See January 2010 Legal Update)

8/22/2010 – EFTA/Reg E Credit Card Act Provisions Restricting Certain Fees for Prepaid Gift Cards and Prohibiting Expiration Dates of Less than 5 Years Become Effective (See January 2010 Legal Update)

10/1/2010 – Deadline to Escrow for HPML Loans on Manufactured Housing (See September 2009 Legal Update)

10/1/2010 – Deadline to Adopt Policies and Procedures Required for Compliance with the S.A.F.E. Act (See discussion above)

12/31/2010 – FDIC TAG Program Expires (for banks that did not opt out in April 2010, unless program is further extended by FDIC) (See May 2010 Legal Update)