Thursday, August 18, 2022

October 2021 OBA Legal Briefs

  • Regulatory priorities
  • Consumer complaints
  • 2021 OK legislation—Part III
    • OK Banking Code
    • Judgment liens
    • Motor Vehicles
    • OK Tax Code
    • OK POA Act—Part II
    • Uniform Consumer Credit Code (“U3C”) § 3-508A
    • Uniform Interstate Depositions and Discovery Act of 2021

 

Regulatory Priorities

By Andy Zavoina

You spend your days preparing for meetings, going to meetings, auditing your bank for various compliance topics, and answering questions about what can and cannot be done, and that is all before lunch. We understand you are busy, and your time is limited. Still, one of the issues you must address is forecasting changes that impact your bank and part of this is what the regulators’ priorities are. We watch what Congress and the agencies are doing and proposing and want to take time this month to condense a few of these potential issues before you commit to budgets and audit schedules and all those “next year” things that are about to happen to you in the weeks to come.

As to priorities, the regulatory agencies have a focus on fair lending and equal access to credit. Let me first mention a potential addition to Reg. B and the Equal Credit Opportunity Act (ECOA). HR 166, short titled “Fair Lending for All Act” is intended to clarify, if not expand, protected classes under the ECOA by adding specificity that, (i) sexual orientation, (ii) gender identity, and (iii) location based on zip code or census tract, are also protected classes under the ECOA.

Be sure to also read the section on the Consumer Financial Protection Bureau’s (CFPB) analysis of complaints as it specifically correlates race to census tract to types of complaints submitted. These are fair lending issues and is the first time the CFPB has done such an in-depth review and used census data to get there. Census data will play a larger role in more Reg B changes as well.

CFPB acting Director David Uejio said earlier this year that the CFPB had a new focus and priorities. He said, “I am going to elevate and expand existing investigations and exams and add new ones to ensure we have a healthy docket intended to address racial equity.” He went on, “This of course means that fair lending enforcement is a top priority and will be emphasized accordingly. But we will also look more broadly, beyond fair lending, to identify and root out unlawful conduct that disproportionately impacts communities of color and other vulnerable populations.” He also appeared in a CFPB produced video in which he said, “the CFPB will take action against institutions and individuals whose policies and practices prevent fair and equal access to credit or take advantage of poor, underserved, and disadvantaged communities.”

Acting Director Uejio is not alone; Acting Comptroller of the Currency Michael J. Hsu said, “There is no place for discrimination in the federal banking system,” and added, “The OCC will use the full force of our authority to correct fair lending violations with our supervisory and enforcement tools, including civil money penalties, cease and desist orders, and requiring restitution for customers harmed as a result of any discriminatory practices.”

The Federal Trade Commission took enforcement actions last year in one case requiring $1.5 million in refunds. This was the first time the FTC had charged an auto dealer with illegal racial discrimination said FTC Commissioner Rohit Chopra. Yes, this Commissioner is the incoming CFPB director now that his nomination has been confirmed by the Senate. One would reasonably believe that Chopra and Uejio have shared information as well as objectives and goals.

The OCC recently joined with the Department of Justice in taking actions against Cadence Bank for fair lending discrimination issues which resulted in a $3 million penalty and pledge to invest $5.5 million to increase credit opportunities in some Houston areas (think census tracts) that are predominantly Black and Hispanic neighborhoods.

While fair lending changes are projected, increased enforcement has already begun.

Another change to Reg B is out for comment. Section 1071 of the Dodd-Frank Act requires banks to collect, maintain and report to the CFPB, data on credit applications made by women-owned, minority-owned, and small businesses. This has been a slow-moving change but is now becoming a reality. The Bureau’s 1,000-page proposal will require many small business lenders to essentially collect LAR-like data you are accustomed to under HMDA and CRA for these small business loans when criteria are met. It will also restrict access to certain parts of the information, require recordkeeping and retention as well as publication of the collected data. While a potentially huge undertaking for small business lenders, this rule has some issues and conflicts to resolve and will be finalized within 18 months after its 10/8/2021 publication in the Federal Register . The CFPB is also proposing a transitional period permitting collection of the data such as the owners’ ethnicity, race, and sex and this could extend the required implementation to 2025.

If you are thinking that allows three years, yes, that is the way it looks now. But like the 2018 HMDA overhaul, preparations should begin when you know what you will have to address and that should start in 2022. Monitoring the bank’s lending activity to small business and the minimum thresholds in the final rule may put a bank into or outside data collection requirements.

Consumer Complaints

By Andy Zavoina

On September 23, 2021, the CFPB issued a report, “Consumer complaints throughout the credit life cycle, by demographic characteristics.” We know that complaint management is crucial to your compliance management program as complaints are critical in detecting and resolving issues before they become UDAP, fair lending or other compliance issues. Think of complaint resolution as a way to “nip it in the bud” and avoid a problem from becoming a pattern or practice.

This report used one million complaints from 2018 to 2020 and matches complaints to census tracts, and then uses census tract data to assimilate demographics of the complainant. What was deduced was that complaints from wealthier communities and communities with higher percentages of white, non-Hispanic residents complained about loan origination and performing servicing, and complaints from communities of color and lower income communities complained about credit reporting, identity theft, and delinquent servicing.

Complaints may then be categorized by type, to income and race, based on this methodology. CFPB Acting Director Dave Uejio said, “Our consumer complaint data is a crucial tool for understanding varying consumer experiences, including across racial and economic divides.”

Additional general findings were that:

  • Loan origination complaints increased 50% during the year, driven by higher-income areas with fewer people of color.
  • Areas with the highest share of whites complain twice as much as predominantly Black areas.
  • Predominantly Black areas complain twice as much (per resident) as others.
  • Lower income census tracts submit 30% more complaints per resident.

One reason this is important in my mind relates to the recent action by HUD to rescind the 2020 rule on disparate impact which will make it easier to “prove” discrimination exists based on generalizations. Disparate impact is one method used to show evidence of lending discrimination under ECOA and the Fair Housing Act. The methodology is controversial because it allows a person to claim a fair lending violation when a neutral practice is applied uniformly to all applicants but has a discriminatory effect on a prohibited basis. Could one connect the dots between complaints, income and race that then lead to Reg B – ECOA violations of equal treatment?

Action Items:

1) Stay abreast of the bills and proposals pending. Comment on them when it is of interest to your bank. Be aware of changes and how they impact your operations.

2) As changes are made, keep your policies and procedures current to new requirements. Even if changes are not necessary, document your review so any auditing will see that they are current.

3) Remember that fair lending starts with advertising and flows through the loan process, servicing, and collections. In the last year we have seen big enforcement penalties based on poorly crafted advertising and we see complaints on servicing and credit reporting.

4) Train staff to be aware, ultra-aware of lending issues and complaints and to treat all of them equally and thoroughly as a lending issue may more easily be deemed a fair lending issue today.

2021 OK legislation – Part III

By Kelsey Hull

Hello! My name is Kelsey Hull, and I am an extern for the Oklahoma Bankers Association for the fall semester. I’m currently in my last year at Oklahoma City University School of Law. My hometown is Waynoka, Oklahoma, and I hold a bachelor’s degree in International Studies from the University of Oklahoma. I’m very grateful for the opportunity to write this article, and I hope you find it helpful.

OK Banking Code

Title 6 O.S. § 908. This new section of the Banking Code covers Savings Promotion Raffles. In 2014, Congress passed the American Savings Promotion Act, and Andy Zavoina wrote about the Act in the March 2015 OBA Legal Briefs, which you can access online. While the federal Act excluded these raffles from being an illegal lottery under federal law, it was up to each state to enact legislation to allow these raffles under state law. See Can Contests Help Fill Americans’ Savings Gap?, Pew Charitable Trusts (Nov. 9, 2018); Caroline Ratcliffe, et. al., Evidence-Based Strategies to Build Emergency Savings, Consumer Financial Protection Bureau (July 2020).

Effective November 1, 2021, Oklahoma banks and credit unions may begin offering savings promotion raffles under § 908:

As used in this section, the term “savings promotion raffle” means a contest in which the sole consideration required for a chance of winning designated prizes is obtained by the deposit of a specified amount of money in a savings account or other savings program and each ticket or entry has an equal chance of being drawn, with such contest being subject to regulations that may from time to time be promulgated by the bank’s or credit union’s primary regulator. Oklahoma banks and credit unions are authorized to offer savings promotion raffles.

The only difference between Oklahoma’s Section 908 and the federal Act is in the last sentence. In the federal Act, the last sentence ends by saying “…to be promulgated by the appropriate prudential regulator (as defined in section 1002 of the Consumer Financial Protection Act of 2010 (12 U.S.C. 5481)).” In Oklahoma’s statute, it refers to the bank’s or credit union’s primary regulator.

If any questions remain as to whether saving promotion raffles are lotteries, the definition of “lottery” was changed under 12 U.S.C §25A in 2014, specifically excluding such raffles: “The term ‘lottery’ includes any arrangement, other than a savings promotion raffle…”

Judgment liens

Title 46 O.S. § 15 (Mortgage Code) and Title 36 O.S. § 5008 (Insurance Code). Bankers may recall that Title 47 of the Mortgage Code § 15 requires the release of mortgage be recorded within 30 days after the debt has been paid. If the release is not timely recorded, the mortgagor or the title insurer may demand release, and the mortgagee has 10 days to record the release or face penalties. Beginning 11/1/21 this section will apply to judgment lien holders as well as mortgagees.

Title 36 O.S. § 5008 in the Oklahoma Insurance Code provides that If a mortgagee fails to execute and deliver a release of mortgage to the mortgagor or designated agent of the mortgagor within sixty (60) days after the date of receipt of payment of the mortgage in accordance with a payoff statement provided by the mortgagee or servicer, an authorized officer of a title insurance company or its duly appointed agent may execute and record an affidavit with the county clerk where the real property is located on behalf of the mortgagor or a transferee of the mortgagor together with documentation of the payment. Effective 11/1/21, this section will also apply to judgment liens.

Motor vehicles

Title 47 O.S. § 1110 Perfection of Security Interest

Effective November 1, 2021, the following new provision is added under subsection A:

  1. When there is an active lien from a commercial lender in place on a vehicle, motor license agents shall be prohibited from transferring the certificate of title on that vehicle until the lien is satisfied.

Title 47 O.S. § 427A.  Electronic filing of certificates of title, liens, assignments, and releases. This is a new law under Title 47—Motor Vehicles, which takes effect November 1, 2021. The central idea of this law is the creation of an electronic filing, storage, and delivery of motor vehicle title certificates program. Additionally, the program allows the perfection, assignment, and release of a lien by a lienholder through electronic means rather than paper documents. This program will start on or before July 1, 2022. A qualified system developer will help with providing and accessing the necessary software and equipment to actually implement this digital transformation. However, this new system will only affect applications filed after June 30, 2022. Okla. Stat. Tit. 47, § 427A Sec. A.

Section B of the statute covers various procedures that are available for the program, although the list is nonexclusive.  Okla. Stat. tit. 47, §1105A(B)(1)-(6). First up on the list is delivery of a certificate of title. If a party chooses to use the electronic route, the certificate need only be issued or printed upon the satisfaction of the last lien. The next two examples regard the service provider, and basically say that the vendor will be qualified and charge reasonable fees. In the fourth example, the statute states that the program will allow access to electronic records of the filed items. Part five allows motor license agents to participate in the program and for their receipt of all fees provided by the Oklahoma Vehicle License and Registration Act. Finally, the program accepts electronic or digital signatures.

Section C concerns definitions, which match with those listed throughout the existing statutes in sections 1101 and beyond.

Section D addresses the validity of the documents created, stored, or delivered through the program. All the documents are in fact valid, even with scanned or electronic signatures. As long as the document is a certified copy of the Oklahoma Tax Commission’s electronic record, it will be admissible in court proceedings, if needed.

Section E deals with financing the program. Essentially, the Tax Commission can spend the necessary funds needed to implement the program.

Finally, section F allows the Tax Commission to consult third parties specifically including the Oklahoma Bankers Association to help with the program’s development.

Tax Code

Title 68 O.S. § 2370. This section is amended for taxable years beginning after December 31, 2021. The Oklahoma privilege tax of doing business within Oklahoma for state banking associations, national banking associations and credit unions organized under the laws of this state, located or doing business within the limits of the State of Oklahoma is reduced from the rate of 6% to 4% of the amount of the taxable income.

Title 68 O.S. § 2370.1. This section of the Oklahoma Tax Code is amended effective January 1, 2021, with regard to credit for SBA guaranty of 7(a) program loans. The new timeframe for these credits will be on or after January 1, 2022, and before January 1, 2025.

 Oklahoma POA Act – Part II

By Pauli D. Loeffler

I need to correct a statement made in the newspaper and email versions of the September 2021 OBA Legal Briefs indicating that some but not all the sections under the Durable Power of Attorney Act (“DPOA Act”) were repealed. In fact, all sections (Title 58 O.S. §§ 1071 – 1077) are repealed effective November 1, 2021. How does this affect DPOAs executed prior to November 1, 2021?

Appointment of guardian. Does appointment of a guardian terminate powers granted an AIF under a DPOA? The appointment of a guardian does not automatically revoke the DPOA under either ACT. § 1074 of the old DPOA Act and § 3008 of the new POA Act are similar but not identical. Under both Acts, the principal may nominate a guardian or conservator in the DPOA, and the court shall appoint such person unless s/he is disqualified or for good cause shown.  The AIF is accountable to both the principal and the guardian. The main difference between the two Acts is that under § 1074 (old), the guardian had the power to revoke or amend the DPOA, while under § 3008 (new) the AIF’s authority continues unless limited, suspended or terminated by the court. Note that if the POA is not durable, the powers granted the AIF terminate.

If the AIF under a non-durable POA has no actual knowledge that a guardian has been appointed, actions of the AIF on behalf of the principal are binding. This is true under § 1075 of the DPOA Act and under § 3010 of the new POA Act. On the other hand, even if the AIF does not know of the guardianship, if the bank has actual knowledge that a guardian has been appointed, if the bank allows the transaction under a non-durable POA, it may be liable.

Appointment of Rep Payee or Federal Fiduciary. Neither the Social Security Administration nor the Veteran’s Administration will accept a POA/DPOA. There is a presumption that every beneficiary is capable of handling his or her own money, and the appointment of a Rep Payee does not carry the same notice and hearing requirements as a guardianship. The question of whether appointment of a rep payee or federal fiduciary is effective to terminate a non-durable power of attorney is somewhat uncertain, but I would argue that it doesn’t necessarily amount to a determination of incapacity. Why do I say this? If the rep payee or the federal fiduciary dies or is determined by a court to require a guardian, the bank must notify the SSA or VA and return any benefit payments received. When this happens, the SSA and the VA will send checks directly to the beneficiary until such time as these agencies determine a new rep payee/federal fiduciary needs to be appointed. It is not uncommon for a beneficiary to have one individual named as rep payee/federal fiduciary and someone else appointed as guardian. Until the SSA or VA acknowledges the guardianship and directs payments to the guardian, the guardian will have to work with the current rep payee/federal fiduciary.

Death of the principal. Whether the POA is durable or not, the AIF’s authority terminates upon the principal’s death. Yes, I have actually seen DPOAs that say they are unaffected by death of the principal, but that isn’t true. On the other hand, both the DPOA Act (§ 1075) and the POA Act (§ 3010) provide that if the AIF does not have actual knowledge of the principal’s death and the acts performed are solely for the benefit of the principal, such acts are binding upon the principal’s heirs and successors. Again, if the bank has actual knowledge of the principal’s death, the bank has no protection if it allows the AIF to make transactions.

Protecting the bank. Section 1076 of the DPOA Act provided protection for the bank in making transactions with an AIF if the bank had concerns whether the POA or DPOA may have been revoked, a guardian may have been appointed for the principal if the POA was non-durable, or the principal had died. The bank could require the AIF to sign an Affidavit of Lack of Knowledge and be protected. As was mentioned in the September article, § 3042 of the POA Act provides an optional form that the bank may require the AIF to fill out and execute before a notary Certifying Facts Concerning Power of Attorney. Use of this form will protect the bank.

  • 3024 Authority and Restrictions. I review a lot of POAs/DPOAs to determine whether the AIF can add himself as joint owner or POD, add, remove, or otherwise change PODs, add an authorized signer to an account, directly make transactions on the principal’s living trust, etc. This section of the POA Act clearly sets forth restrictions on the authority of the AIF to do certain act unless explicitly granted in writing under the POA. It supports the positions and answers I have given for the past 17 years. In order for an AIF to create, amend, revoke or terminate an inter vivos trust, make a gift, create or change rights of survivorship, create or change a beneficiary designation, add an authorized signer, waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan, or exercise fiduciary powers that the principal has authority to delegate (e.g., appoint an authorized signer on a corporation, LLC, etc. account), these powers must be explicitly granted. Further, an AIF who is not an ancestor, spouse or descendant of the principal may not exercise authority under a power of attorney to create in the AIF, or in an individual to whom the AIF owes a legal obligation of support, an interest in the principal’s property, whether by gift, right of survivorship, beneficiary designation, disclaimer or otherwise.

Attorneys generally put in the catch-all provision granting the AIF the power to do any act that the principal may himself do.  I often have to defend my requirement that certain acts, such as adding the AIF as joint owner or a POD require explicit authority.  Subsection C. of this statute provides that subject to subsections A, B, D and E of this section, if a power of attorney grants to an agent authority to do all acts that a principal could do, the agent has the general authority described in Sections 27 through 39 of the POA Act while the grant of the power to make a gift is explained in detail under § 3040.

Uniform Consumer Credit Code (“U3C”) § 3-508A

Title 14A O.S. § 3-508. This section of the “U3C” sets the maximum annual percentage rate for certain loans. It provides three tiers based with different rates based on unpaid principal balances that may be “blended.” It also has an alternative maximum rate that may be used rather than blending the rates. The amounts under each tier were subject to annual adjustment by the Administrator of the Oklahoma Department of Consumer Credit under §1-106, however. The annual adjustment of tier amounts was removed effective August 22, 2014, and a loan made under §3-508A could not have a repayment term of less than 12 months from the date the loan is made which provision was removed effective November 1, 2015.

The loan amount subject to tier (2)(a)(i) has greatly increased as well as the maximum annual percentage rate allowed for that tier. The maximum annual percentage rate for the other two tiers did not increase, but the loan amounts under the second and third tier have. The alternative maximum annual percentage rate allowed in lieu of blending the tiers under (2)(b) remains unchanged.

Maximum Rates by Tier Amounts. §3-508A as amended limits the maximum APR under the three tiers as follows:

(2) The loan finance charge, calculated according to the actuarial method, may not exceed the equivalent of the greater of either of the following:

(a)  the total of:

(i)  thirty-two percent (32%) [currently 27%] per year on that part of the unpaid balances of the principal which is Seven Thousand Dollars ($7,000.00) [currently $2,910] or less;

(ii)  twenty-three percent (23%) [no change] per year on that part of the unpaid balances of the principal which is more than Seven Thousand Dollars ($7,000.00) [currently $2,910.01] but does not exceed Eleven Thousand Dollars ($11,000.00) [currently $6,200.00]; and

(iii)  twenty percent (20%) [no change] per year on that part of the unpaid balances of the principal which is more than Eleven Thousand Dollars ($11,000.00) [currently $6,200.00]; or

(b)  twenty-five percent (25%) [no change] per year on the unpaid balances of the principal.

The Dollar Amounts under the three tiers of §3-508A Loans are NOT subject to annual adjustment, but a new subsection (4) has been added allowing the lender to charge a closing fee IS subject to adjustment under § 1-106:

(4)  In addition to the loan finance charge permitted in this section and other charges permitted in this act, a supervised lender may assess a lender closing fee not to exceed Twenty-eight Dollars and eighty-five cents ($28.85) upon consummation of the loan.

Note that the closing fee, while not a finance charge under the OK U3C, IS a finance charge under Reg Z. Most banks use Reg Z disclosures. This means that it is possible that the fee under Reg Z disclosures will cause the APR to exceed the usury rate under § 3-508A. If that happens, document the file to show that the fee is excluded under the U3C to show that the loan does not in fact violate Oklahoma’s usury provisions.

You can access the § 3-508A Matrix here.

 

Uniform Interstate Depositions and Discovery Act of 2021

By Pauli D. Loeffler

This new Act is codified in Title 12, the Civil Procedure Code, and contains §§ 3250 – 3257. Per § 3257 the Act applies to requests for discovery in cases pending on November 1, 2021.

A subpoena issued by a court of a state other than Oklahoma served on a bank without branches in the state issuing the subpoena had to be logged by the court clerk in the county where the bank was located before service in order to have jurisdiction over the Oklahoma bank. If this wasn’t done, I advised the bank to use the “No Jurisdiction Letter” template available on the OBA’s Legal Links page found under Templates, Forms, and Charts.  On and after 11/1/21, the procedures under the new Act will apply.

§ 3251 contains definitions. “Foreign jurisdiction” is a state other than Oklahoma while a “foreign subpoena” is one issued under the authority of a court of record of a foreign jurisdiction. “State” means the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, a federally recognized Indian tribe or any territory or insular possession subject to the jurisdiction of the United States. The Act covers subpoenas requiring attendance and giving of testimony at a deposition, production of documents (Subpoena Duces Tecum), and inspection of premises.

§ 3252 requires a party to submit the foreign subpoena to the court clerk of the county in which discovery is to be conducted. Generally, this would be the county where the main bank is located. A request for the issuance of a subpoena does not constitute an appearance in the courts of this state. This is important if the attorney requesting the subpoena is not licensed to practice law in Oklahoma, because s/he would have to file a Motion Pro Hac Vice with the court and obtain a judicial order in order to appear in the Oklahoma court. The names, addresses and telephone numbers of all counsel of record in the proceeding and any unrepresented party have to be provided.

The subpoena issued by the Oklahoma court clerk must be served in compliance with § 2004.1 of the Civil Procedure Code just like any other subpoena. The duties to respond to the subpoena are also subject to § 2004.1.

Orders to enforce, quash, or modify the subpoena or for a protective order must be submitted to the county court in Oklahoma that issued the subpoena.

 

Consumer Complaints

By Andy Zavoina

On September 23, 2021, the CFPB issued a report, “Consumer complaints throughout the credit life cycle, by demographic characteristics.” We know that complaint management is crucial to your compliance management program as complaints are critical in detecting and resolving issues before they become UDAP, fair lending or other compliance issues. Think of complaint resolution as a way to “nip it in the bud” and avoid a problem from becoming a pattern or practice.

This report used one million complaints from 2018 to 2020 and matches complaints to census tracts, and then uses census tract data to assimilate demographics of the complainant. What was deduced was that complaints from wealthier communities and communities with higher percentages of white, non-Hispanic residents complained about loan origination and performing servicing, and complaints from communities of color and lower income communities complained about credit reporting, identity theft, and delinquent servicing.

Complaints may then be categorized by type, to income and race, based on this methodology. CFPB Acting Director Dave Uejio said, “Our consumer complaint data is a crucial tool for understanding varying consumer experiences, including across racial and economic divides.”

Additional general findings were that:

  • Loan origination complaints increased 50% during the year, driven by higher-income areas with fewer people of color.
  • Areas with the highest share of whites complain twice as much as predominantly Black areas.
  • Predominantly Black areas complain twice as much (per resident) as others.
  • Lower income census tracts submit 30% more complaints per resident.

One reason this is important in my mind relates to the recent action by HUD to rescind the 2020 rule on disparate impact which will make it easier to “prove” discrimination exists based on generalizations. Disparate impact is one method used to show evidence of lending discrimination under ECOA and the Fair Housing Act. The methodology is controversial because it allows a person to claim a fair lending violation when a neutral practice is applied uniformly to all applicants but has a discriminatory effect on a prohibited basis. Could one connect the dots between complaints, income and race that then lead to Reg B – ECOA violations of equal treatment?

Action Items:

1) Stay abreast of the bills and proposals pending. Comment on them when it is of interest to your bank. Be aware of changes and how they impact your operations.

2) As changes are made, keep your policies and procedures current to new requirements. Even if changes are not necessary, document your review so any auditing will see that they are current.

3) Remember that fair lending starts with advertising and flows through the loan process, servicing, and collections. In the last year we have seen big enforcement penalties based on poorly crafted advertising and we see complaints on servicing and credit reporting.

4) Train staff to be aware, ultra-aware of lending issues and complaints and to treat all of them equally and thoroughly as a lending issue may more easily be deemed a fair lending issue today.

The CFPB is also proposing a transitional period permitting collection of the data such as the owners’ ethnicity, race, and sex and this could extend the required implementation to 2025.

If you are thinking that allows three years, yes, that is the way it looks now. But like the 2018 HMDA overhaul, preparations should begin when you know what you will have to address and that should start in 2022. Monitoring the bank’s lending activity to small business and the minimum thresholds in the final rule may put a bank into or outside data collection requirements.

2021 OK legislation – Part III

By Kelsey Hull

Hello! My name is Kelsey Hull, and I am an extern for the Oklahoma Bankers Association for the fall semester. I’m currently in my last year at Oklahoma City University School of Law. My hometown is Waynoka, Oklahoma, and I hold a bachelor’s degree in International Studies from the University of Oklahoma. I’m very grateful for the opportunity to write this article, and I hope you find it helpful.

OK Banking Code

Title 6 O.S. § 908. This new section of the Banking Code covers Savings Promotion Raffles. In 2014, Congress passed the American Savings Promotion Act, and Andy Zavoina wrote about the Act in the March 2015 OBA Legal Briefs, which you can access online. While the federal Act excluded these raffles from being an illegal lottery under federal law, it was up to each state to enact legislation to allow these raffles under state law. See Can Contests Help Fill Americans’ Savings Gap?, Pew Charitable Trusts (Nov. 9, 2018), https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2018/11/can-contests-help-fill-americans-savings-gap; Caroline Ratcliffe, et. al., Evidence-Based Strategies to Build Emergency Savings, Consumer Financial Protection Bureau (July 2020), https://files.consumerfinance.gov/f/documents/cfpb_evidence-based-strategies-build-emergency-savings_report_2020-07.pdf

Effective November 1, 2021, Oklahoma banks and credit unions may begin offering savings promotion raffles under § 908:

As used in this section, the term “savings promotion raffle” means a contest in which the sole consideration required for a chance of winning designated prizes is obtained by the deposit of a specified amount of money in a savings account or other savings program and each ticket or entry has an equal chance of being drawn, with such contest being subject to regulations that may from time to time be promulgated by the bank’s or credit union’s primary regulator. Oklahoma banks and credit unions are authorized to offer savings promotion raffles.

The only difference between Oklahoma’s Section 908 and the federal Act is in the last sentence. In the federal Act, the last sentence ends by saying “…to be promulgated by the appropriate prudential regulator (as defined in section 1002 of the Consumer Financial Protection Act of 2010 (12 U.S.C. 5481)).” In Oklahoma’s statute, it refers to the bank’s or credit union’s primary regulator.

If any questions remain as to whether saving promotion raffles are lotteries, the definition of “lottery” was changed under 12 U.S.C §25A in 2014, specifically excluding such raffles: “The term ‘lottery’ includes any arrangement, other than a savings promotion raffle…”

Judgment liens

Title 46 O.S. § 15 (Mortgage Code) and Title 36 O.S. § 5008 (Insurance Code). Bankers may recall that § 15 in the Mortgage Code requires the release of mortgage be recorded within 30 days after the debt has been paid. If the release is not timely recorded, the mortgagor or the title insurer may demand release, and the mortgagee has 10 days to record the release or face penalties. Beginning 11/1/21 this section will apply to judgment lien holders as well as mortgagees.

§ 5008 in the Oklahoma Insurance Code provides that If a mortgagee fails to execute and deliver a release of mortgage to the mortgagor or designated agent of the mortgagor within sixty (60) days after the date of receipt of payment of the mortgage in accordance with a payoff statement provided by the mortgagee or servicer, an authorized officer of a title insurance company or its duly appointed agent may execute and record an affidavit with the county clerk where the real property is located on behalf of the mortgagor or a transferee of the mortgagor together with documentation of the payment. Effective 11/1/21, this section will also apply to judgment liens.

Motor vehicles

Title 47 O.S. § 1110 Perfection of Security Interest

Effective November 1, 2021, the following new provision is added under subsection A:

  1. When there is an active lien from a commercial lender in place on a vehicle, motor license agents shall be prohibited from transferring the certificate of title on that vehicle until the lien is satisfied.

Title 47 O.S. § 1105A.  Electronic filing of certificates of title, liens, assignments, and releases. This is a new law under Title 47—Motor Vehicles, which takes effect November 1, 2021. The central idea of this law is the creation of an electronic filing, storage, and delivery of motor vehicle title certificates program. Additionally, the program allows the perfection, assignment, and release of a lien by a lienholder through electronic means rather than paper documents. This program will start on or before July 1, 2022. A qualified system developer will help with providing and accessing the necessary software and equipment to actually implement this digital transformation. However, this new system will only affect applications filed after June 30, 2022. Okla. Stat. tit. 47, §1105A(A).

Section B of the statute covers various procedures that are available for the program, although the list is nonexclusive.  Okla. Stat. tit. 47, §1105A(B)(1)-(6). First up on the list is delivery of a certificate of title. If a party chooses to use the electronic route, the certificate need only be issued or printed upon the satisfaction of the last lien. The next two examples regard the service provider, and basically say that the vendor will be qualified and charge reasonable fees. In the fourth example, the statute states that the program will allow access to electronic records of the filed items. Part five allows motor license agents to participate in the program and for their receipt of all fees provided by the Oklahoma Vehicle License and Registration Act. Finally, the program accepts electronic or digital signatures.

Section C concerns definitions, which match with those listed throughout the existing statutes in sections 1101 and beyond.

Section D addresses the validity of the documents created, stored, or delivered through the program. All the documents are in fact valid, even with scanned or electronic signatures. As long as the document is a certified copy of the Oklahoma Tax Commission’s electronic record, it will be admissible in court proceedings, if needed.

Section E deals with financing the program. Essentially, the Tax Commission can spend the necessary funds needed to implement the program.

Finally, section F allows the Tax Commission to consult third parties to help with the program’s development.

Tax Code

Title 68 O.S. § 2370. This section is amended for taxable years beginning after December 31, 2021. The Oklahoma privilege tax of doing business within Oklahoma for state banking associations, national banking associations and credit unions organized under the laws of this state, located or doing business within the limits of the State of Oklahoma is reduced from the rate of 6% to 4% of the amount of the taxable income.

Title 68 O.S. § 2370.1. This section of the Oklahoma Tax Code is amended effective January 1, 2021, with regard to credit for SBA guaranty of 7(a) program loans. The new timeframe for these credits will be on or after January 1, 2022, and before January 1, 2025.

Oklahoma POA Act – Part II

By Pauli D. Loeffler

I need to correct a statement made in the newspaper and email versions of the September 2021 OBA Legal Briefs indicating that some but not all the sections under the Durable Power of Attorney Act (“DPOA Act”) were repealed. In fact, all sections (Title 58 O.S. §§ 1071 – 1077) are repealed effective November 1, 2021. How does this affect DPOAs executed prior to November 1, 2021?

Appointment of guardian. Does appointment of a guardian terminate powers granted an AIF under a DPOA? The appointment of a guardian does not automatically revoke the DPOA under either ACT. § 1074 of the old DPOA Act and § 3008 of the new POA Act are similar but not identical. Under both Acts, the principal may nominate a guardian or conservator in the DPOA, and the court shall appoint such person unless s/he is disqualified or for good cause shown.  The AIF is accountable to both the principal and the guardian. The main difference between the two Acts is that under § 1074 (old), the guardian had the power to revoke or amend the DPOA, while under § 3008 (new) the AIF’s authority continues unless limited, suspended or terminated by the court. Note that if the POA is not durable, the powers granted the AIF terminate.

If the AIF under a non-durable POA has no actual knowledge that a guardian has been appointed, actions of the AIF on behalf of the principal are binding. This is true under § 1075 of the DPOA Act and under § 3010 of the new POA Act. On the other hand, even if the AIF does not know of the guardianship, if the bank has actual knowledge that a guardian has been appointed, if the bank allows the transaction under a non-durable POA, it may be liable.

Appointment of Rep Payee or Federal Fiduciary. Neither the Social Security Administration nor the Veteran’s Administration will accept a POA/DPOA. There is a presumption that every beneficiary is capable of handling his or her own money, and the appointment of a Rep Payee does not carry the same notice and hearing requirements as a guardianship. The question of whether appointment of a rep payee or federal fiduciary is effective to terminate a non-durable power of attorney is somewhat uncertain, but I would argue that it doesn’t necessarily amount to a determination of incapacity. Why do I say this? If the rep payee or the federal fiduciary dies or is determined by a court to require a guardian, the bank must notify the SSA or VA and return any benefit payments received. When this happens, the SSA and the VA will send checks directly to the beneficiary until such time as these agencies determine a new rep payee/federal fiduciary needs to be appointed. It is not uncommon for a beneficiary to have one individual named as rep payee/federal fiduciary and someone else appointed as guardian. Until the SSA or VA acknowledges the guardianship and directs payments to the guardian, the guardian will have to work with the current rep payee/federal fiduciary.

Death of the principal. Whether the POA is durable or not, the AIF’s authority terminates upon the principal’s death. Yes, I have actually seen DPOAs that say they are unaffected by death of the principal, but that isn’t true. On the other hand, both the DPOA Act (§ 1075) and the POA Act (§ 3010) provide that if the AIF does not have actual knowledge of the principal’s death and the acts performed are solely for the benefit of the principal, such acts are binding upon the principal’s heirs and successors. Again, if the bank has actual knowledge of the principal’s death, the bank has no protection if it allows the AIF to make transactions.

Protecting the bank. Section 1076 of the DPOA Act provided protection for the bank in making transactions with an AIF if the bank had concerns whether the POA or DPOA may have been revoked, a guardian may have been appointed for the principal if the POA was non-durable, or the principal had died. The bank could require the AIF to sign an Affidavit of Lack of Knowledge and be protected. As was mentioned in the September article, § 3042 of the POA Act provides an optional form that the bank may require the AIF to fill out and execute before a notary Certifying Facts Concerning Power of Attorney. Use of this form will protect the bank. 3024 Authority and

§ 3024 Authority and Restrictions. I review a lot of POAs/DPOAs to determine whether the AIF can add himself as joint owner or POD, add, remove, or otherwise change PODs, add an authorized signer to an account, directly make transactions on the principal’s living trust, etc. This section of the POA Act clearly sets forth restrictions on the authority of the AIF to do certain act unless explicitly granted in writing under the POA. It supports the positions and answers I have given for the past 17 years. In order for an AIF to create, amend, revoke or terminate an inter vivos trust, make a gift, create or change rights of survivorship, create or change a beneficiary designation, add an authorized signer, waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan, or exercise fiduciary powers that the principal has authority to delegate (e.g., appoint an authorized signer on a corporation, LLC, etc. account), these powers must be explicitly granted. Further, an AIF who is not an ancestor, spouse or descendant of the principal may not exercise authority under a power of attorney to create in the AIF, or in an individual to whom the AIF owes a legal obligation of support, an interest in the principal’s property, whether by gift, right of survivorship, beneficiary designation, disclaimer or otherwise.

Attorneys generally put in the catch-all provision granting the AIF the power to do any act that the principal may himself do.  I often have to defend my requirement that certain acts, such as adding the AIF as joint owner or a POD require explicit authority.  Subsection C. of this statute provides that subject to subsections A, B, D and E of this section, if a power of attorney grants to an agent authority to do all acts that a principal could do, the agent has the general authority described in Sections 27 through 39 of the POA Act while the grant of the power to make a gift is explained in detail under § 3040.

Uniform Consumer Credit Code (“U3C”) § 3-508A

By Pauli D. Loeffler

Title 14A O.S. § 3-508. This section of the “U3C” sets the maximum annual percentage rate for certain loans. It provides three tiers based with different rates based on unpaid principal balances that may be “blended.” It also has an alternative maximum rate that may be used rather than blending the rates. The amounts under each tier were subject to annual adjustment by the Administrator of the Oklahoma Department of Consumer Credit under §1-106, however. The annual adjustment of tier amounts was removed effective August 22, 2014, and a loan made under §3-508A could not have a repayment term of less than 12 months from the date the loan is made which provision was removed effective November 1, 2015.

The loan amount subject to tier (2)(a)(i) has greatly increased as well as the maximum annual percentage rate allowed for that tier. The maximum annual percentage rate for the other two tiers did not increase, but the loan amounts under the second and third tier have. The alternative maximum annual percentage rate allowed in lieu of blending the tiers under (2)(b) remains unchanged.

Maximum Rates by Tier Amounts. § 3-508A as amended limits the maximum APR under the three tiers as follows:

(2) The loan finance charge, calculated according to the actuarial method, may not exceed the equivalent of the greater of either of the following:

(a)  the total of:

(i)  thirty-two percent (32%) [currently 27%] per year on that part of the unpaid balances of the principal which is Seven Thousand Dollars ($7,000.00) [currently $2,910] or less;

(ii)  twenty-three percent (23%) [no change] per year on that part of the unpaid balances of the principal which is more than Seven Thousand Dollars ($7,000.00) [currently $2,910.01 but does not exceed Eleven Thousand Dollars ($11,000.00); and

(iii)  twenty percent (20%) [no change] per year on that part of the unpaid balances of the principal which is more than Eleven Thousand Dollars ($11,000.00); or

(b)  twenty-five percent (25%) [no change] per year on the unpaid balances of the principal.

The Dollar Amounts under the three tiers of §3-508A Loans are NOT subject to annual adjustment, but a new subsection (4) has been added allowing the lender to charge a closing fee IS subject to adjustment under § 1-106:

(4)  In addition to the loan finance charge permitted in this section and other charges permitted in this act, a supervised lender may assess a lender closing fee not to exceed Twenty-eight Dollars and eighty-five cents ($28.85) upon consummation of the loan.

Note that the closing fee, while not a finance charge under the OK U3C, IS a finance charge under Reg Z. Most banks use Reg Z disclosures. This means that it is possible that the fee under Reg Z disclosures will cause the APR to exceed the usury rate under § 3-508A. If that happens, document the file to show that the fee is excluded under the U3C to show that the loan does not in fact violate Oklahoma’s usury provisions.

 

Uniform Interstate Depositions and Discovery Act of 2021

By Pauli D. Loeffler

This new Act is codified in Title 12, the Civil Procedure Code, and contains §§ 3250 – 3257. Per § 3257 the Act applies to requests for discovery in cases pending on November 1, 2021.

A subpoena issued by a court of a state other than Oklahoma served on a bank without branches in the state issuing the subpoena had to be logged by the court clerk in the county where the bank was located before service in order to have jurisdiction over the Oklahoma bank. If this wasn’t done, I advised the bank to use the “No Jurisdiction Letter” template available on the OBA’s Legal Links page found under Templates, Forms, and Charts.  On and after 11/1/21, the procedures under the new Act will apply.

§ 3251 contains definitions. “Foreign jurisdiction” is a state other than Oklahoma while a “foreign subpoena” is one issued under the authority of a court of record of a foreign jurisdiction. “State” means the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, a federally recognized Indian tribe or any territory or insular possession subject to the jurisdiction of the United States. The Act covers subpoenas requiring attendance and giving of testimony at a deposition, production of documents (Subpoena Duces Tecum), and inspection of premises.

§ 3252 requires a party to submit the foreign subpoena to the court clerk of the county in which discovery is to be conducted. Generally, this would be the county where the main bank is located. A request for the issuance of a subpoena does not constitute an appearance in the courts of this state. This is important if the attorney requesting the subpoena is not licensed to practice law in Oklahoma, because s/he would have to file a Motion Pro Hac Vice with the court and obtain a judicial order in order to appear in the Oklahoma court. The names, addresses and telephone numbers of all counsel of record in the proceeding and any unrepresented party have to be provided.

The subpoena issued by the Oklahoma court clerk must be served in compliance with § 2004.1 of the Civil Procedure Code just like any other subpoena. The duties to respond to the subpoena are also subject to § 2004.1.

Orders to enforce, quash, or modify the subpoena or for a protective order must be submitted to the county court in Oklahoma that issued the subpoena.