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CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

June 30, 2006

FEDERAL ISSUES

House Passes Flood Insurance Reform Bill. The U.S. House of Representatives on June 27 approved
H.R. 4973, the Flood Insurance Reform and Modernization (FIRM) Act of 2006. Introduced by Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee Chairman Richard H. Baker (LA) and Financial Services Committee Ranking Member Barney Frank (MA), and approved by a vote of 416-4, H.R. 4973 would significantly reform the National Flood Insurance Program (NFIP) and ensure its continued viability by increasing accountability, eliminating unnecessary federal subsidies, and updating the flood insurance program. See http://financialservices.house.gov/News.asp?FormMode=release&ID=824.

OMB Issues Data Protection Standards. In response to the spate of recent federal data security breaches, the Office of Management and Budget (OMB) issued, on June 23, a memorandum to federal agencies regarding the protection of information removed from agency facilities or accessed from outside agency locations. OMB recommends that agencies evaluate their policies and practices in accordance with a checklist that was developed from National Institute of Standards and Technology (NIST) guidance. In addition, OMB recommends that federal agencies protect personal information by (i) encrypting all data on mobile devices, (ii) implementing two-factor authentication techniques, (iii) requiring that remote connections “time out” after 30 minutes, and (iv) logging all computer data extracts from databases that hold sensitive information and requiring that the data are destroyed after use or are certified to have ongoing value in off site applications. The OMB guidance provides several citations to NIST publications pertinent to information security issues. While not binding on private industry, financial services companies may wish to peruse the OMB guidance and the supporting NIST documentation when developing their ecommerce plans. The OMB guidance can be located at http://www.whitehouse.gov/omb/memoranda/fy2006/m06-16.pdf.

OFHEO Issues Minimum and Risk-Based Classification for GSEs. James B. Lockhart, Director of the Office of Federal Housing Enterprise Oversight (OFHEO), safety and soundness regulator for Fannie Mae and Freddie Mac (the Enterprises), classified Fannie Mae and Freddie Mac as adequately capitalized as of March 31, 2006. See OFHEO’s press release at http://www.ofheo.gov/.

Treasury Official Gives Speech on GSE Systemic Risk. On June 26, Emil Henry, Jr., the Assistant Secretary for Financial Institutions at the Treasury Department, addressed the Financial Services Roundtable regarding legislation to reform the Government Sponsored Enterprises (GSEs) – namely, Fannie Mae and Freddie Mac. The remarks focused on the idea of "systemic risk" and how it relates to the GSEs. For the full text of the remarks, see http://www.treasury.gov/press/releases/js4338.htm.

Shelia Bair Sworn in as FDIC Chairman. On June 26, Sheila Bair was sworn in as the nineteenth Chairman of the Federal Deposit Insurance Corporation (FDIC) replacing Martin C. Gruenberg, who has served as Acting Chairman since Donald Powell’s resignation in November. Ms. Bair previously served as a Commissioner on the Commodity Futures Trading Commission, and as Senior Vice President for Government Relations of the New York Stock Exchange. Most recently, as the Assistant Treasury Secretary, Ms. Bair helped draft the Administration’s banking policy. For the full text of the press release announcing Ms. Bair’s swearing in please see http://www.fdic.gov/news/news/press/2006/pr06063.html.

New Vice Chairman of the Board of Governors of the Federal Reserve Takes Oath of Office. On June 23, Donald L. Kohn took the oath of office for a four-year term as Vice Chairman of the Board of Governors of the Federal Reserve System (the Board). Governor Kohn has served in the Federal Reserve System, in a multitude of analytic positions, almost continuously since 1970, and took office as a member of the Board on August 5, 2002 for a term that expires January 31, 2016. He was nominated by President Bush on May 18 and his nomination was confirmed by the Senate June 19, 2006. For the full text of the press release, please see: http://www.federalreserve.gov/boarddocs/press/other/2006/20060623/default.htm.

BANKS

House Passes Bill To Reduce Anti-Money Laundering Reports. On June 27, the House of Representatives passed H.R. 5341, the Seasoned Customer CTR Exemption Act of 2006. This bill directs the Treasury Department to enact regulations exempting financial institutions from being required to report the currency transactions of qualified customers under anti-money laundering laws. The bill defines “qualified customers” as persons, including corporations, that have maintained a deposit account for at least twelve months and engage in multiple currency transactions. The bill also provides for a three year review and report and uses inflationary adjustments for its triggering amounts. The full text of the bill, which is now pending in the Senate, can be found on http://thomas.loc.gov/.

NCUA Amends Chartering Policy Regarding Service to Underserved Areas. This week the National Credit Union Administration (NCUA) adopted a final rule that amends its field of membership rules regarding service to underserved areas by (i) limiting the addition of new underserved areas to only multiple common-bond credit unions, and (ii) requiring credit unions to establish a service facility physically located in these underserved areas within two years of the credit union’s addition of the area. “Service facility” is defined as a credit union owned facility where shares are accepted for members’ accounts, loan applications are accepted, and loans are disbursed. The final rule is a response to the NCUA’s comprehensive review of its underserved area policy earlier this year and seeks to ensure continued reliable and efficient service to federal credit union members. The effective date of the final rule is July 28, 2006. To view the final rule in its entirety, please see: http://www.ncua.gov/RegulationsOpinionsLaws/RecentFinalRegs/F-701-Irps.pdf.

Fed Proposes Revisions to Policy on Payment System Risk. On June 22, the Federal Reserve Board requested comments on a proposed revision to Part I of its Policy on Payment System Risk (PSR policy). The proposed revisions update the policy in several ways: they (i) incorporate the international risk management standards for pillar national and international banking institutions (referred to as “central counterparties”) into the PSR policy, (ii) add the central counterparties to the list of institutions under the PSR policy’s term “settlement system,” and (iii) require that central counterparties disclose publicly self-assessments using the principles or minimum standards of PSR policy. It is hoped these revisions will help insulate private banks that do business with foreign central banks from foreign banking crises. Comments are requested by September 22, 2006. The proposed revision may be read at http://www.federalreserve.gov/boarddocs/press/other/2006/200606222/default.htm.

FDIC Extends Comment Period on Three Proposed Rules. On June 28, the FDIC announced that the comment period on three rules proposed on May 18, 2006 had been extended to August 16, 2006. The proposed rules address assignment of dividends, the creation of a one time assessment credit for certain FDIC members, and changes to the risk assessment system to respond more swiftly to changes in institutions’ risk profiles. For text of the proposed rules see http://www.fdic.gov/regulations/laws/federal/2006/06propose518no1.html, http://www.fdic.gov/regulations/laws/federal/2006/06propose518no2.html, and http://www.fdic.gov/regulations/laws/federal/2006/06propose518no3.html.

COURTS

Federal Court Rules Against DOJ Tactic to Dissuade Companies From Advancing Legal Costs to Employees. On June 27, in the case of U.S. v. Stein, No. S1 05 Crim. 0888 (S.D.N.Y. June 27, 2006), Judge Kaplan of the U.S. District Court for the Southern District of New York ruled unconstitutional the U.S. Department of Justice (DOJ) policy known as the “Thompson Memorandum,” which gives favorable consideration to companies under criminal investigation that limit the advance of legal costs, including attorneys fees, to employees whose conduct is at issue in the investigation. In the case, Judge Kaplan ruled that the Thompson Memorandum violated the Fifth and Sixth Amendment rights to a fair trial and legal counsel of KPMG employees whose defense cost reimbursements from KPMG were limited under the terms of a Deferred Prosecution Agreement between the company and the government. The ruling could have significant implications for corporate prosecutions and investigations by the federal government, including those by the Securities and Exchange Commission, given that many enforcement agencies have adhered to the policy enunciated in the Thompson Memorandum. For more information, you many view the opinion at http://www.nysd.uscourts.gov/rulings/05CR888_6272006_0835TS.pdf.

STATE ISSUES

FTC and DOJ Comment on New York Bill Affecting Certain Real Estate-Related Services. The Federal Trade Commission (FTC) and the Department of Justice’s (DOJ) Antitrust Division have issued joint comments on a New York bill (Assembly Bill A05596) that would prohibit non-attorneys from providing certain services related to real estate transactions. For example, the proposed legislation specifies that certain activities, including title abstracting and conducting title searches, constitute “the historic and essential elements of the practice of relevant real estate law in the state.” Additionally, the bill would prohibit non-attorneys from giving advice or negotiating the terms and conditions of, and thereafter preparing agreements for, the sale of real property. According to the joint comments, the bill would harm New York consumers by eliminating “attorney/non-attorney competition for many services where competition likely benefits consumers.” For more information, see http://www.ftc.gov/opa/2006/06/fyi0642.htm. A copy of the joint comments can be found at http://www.ftc.gov/os/2006/06/V060016NYUplFinal.pdf.

New Jersey Implements New Funding System for Banking Regulators. New Jersey has adopted rules implementing a dedicated funding system for persons regulated by the New Jersey Division of Banking. In August 2005, the Legislature and Governor enacted a law establishing this new funding mechanism. The dedicated funding system requires all persons licensed under the New Jersey Licensed Lenders Law to pay a single annual fee consisting of a base assessment plus a volume assessment. Depositories and licensees will no longer pay multiple annual “nuisance” fees, such as initial license fees, license renewal fees, address change fees, name change fees, change of control fees. The dedicated funding system is effective July 1, 2006, but the first annual assessment will not be imposed until September 2007. To view the bill, see http://www.njleg.state.nj.us/2004/Bills/PL05/199_.HTM. For New Jersey Division of Banking commentary see http://www.njdobi.org/bankdedfund/bankdedfunding.htm.

Ohio Governor Signs Predatory Lending Bill. The Governor of Ohio signed SB 185, which amends Ohio’s predatory lending laws by changing sections of the Consumer Sales Practices Act and the Consumer Protection Statute. The bill, which was reported in the June 2nd issue of InfoBytes, contains provisions, among others, affecting licensing and conduct of mortgage brokers such as (i) applying the restrictions of the Ohio Consumer Sales Practices Act to mortgage lending, (ii) imposing new duties on “nonbank mortgage lenders,” (iii) creating a public database of regulatory and enforcement actions, (iv) imposing new limitations on prepayment fees and reducing triggers under Ohio’s existing high-cost home loan law, (v) limiting ownership of settlement service providers, and (vi) creating a new Consumer Finance Education Board. Some of the bill’s provisions are effective immediately, but others go into effect on January 1, 2007. To see text of the bill, visit http://www.lbo.state.oh.us/fiscal/fiscalnotes/126ga/SB0185CC.htm.

© Buckley Kolar, LLP 2006. INFOBYTES is not intended as legal advice to any person or firm. It is provided as a client service and information contained herein is drawn from various public sources, including other publications.

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