BANK DIRECTORS’ TRAINING

Insights, http://www.stlouisfed.org/col/director/agenda.htm, is an online training course developed by the Federal Reserve Bank of Kansas City and supported by the Federal Reserve Bank of St. Louis.  It introduces bank directors to corporate governance and director duties and responsibilities; covers basic bank financial analysis; and discusses the sources, control and monitoring of portfolio risks, including credit, liquidity, and market risks.

Comment:  Excellent resources for bank directors from the other federal bank regulators include the OCC’s Director’s Toolkit, http://www.occ.treas.gov/pubs1.htm;  the FDIC’s Director’s Corner,  http://www.fdic.gov/regulations/resources/directorscorner/index.html; and the OTS’s Directors’ Responsibility Guide,  http://www.ots.treas.gov/docs/2/25245.pdf.

COMMUNITY BANKING MONTH IN APRIL

It's time community banks begin their preparations for Community Banking Month in April.  ICBA created a new theme for this year's nationwide celebration—Community Banking, Where People Come First—and lots of new promotional materials. Coordinated by ICBA and state community banking associations, Community Banking Month is a special opportunity to tell the story of our industry's unique commitment to supporting the financial success of people, small businesses and communities as a whole. The more community banks participate the greater the benefits to all.  See the ICBA Community Banking Month link:  http://www.icba.org/communitybanking/index.cfm?ItemNumber=1206&sn.ItemNumber=1749.

Comment:  It’s not too early to start making plans.  Be sure to check out the celebration ideas, media templates and public service announcements under the “new promotional materials” link.  Also don’t forget that all community banking associations will be gathering in Washington, D.C. and joining with ICBA April 24 – 26 to make their views known in Congress.  Watch for further details.

COMPLIANCE EXAMINATION HANDBOOK

The FDIC has revised its Compliance Examination Handbook.  The new handbook contains the FDIC’s compliance examination policies and procedures in effect as of June 2006, including the CRA examination procedures and evaluations.  The handbook will be available in electronic format only and can be accessed at the following link:  http://www.fdic.gov/regulations/compliance/handbook/index.html.

Comment:  The handbook was last changed in 1999, and there have been many changes since then and now, including a new examination process, from pre-exam planning to the determination of a rating.  There is also new information on documenting examination findings, enforcement action, appeals, visitations and investigations.  Another revised section covers the new compliance requirements for the revised CRA.  A review of the examination procedures for each of the laws or regulations for which the examiners will be examining for compliance is a good method for bank compliance officers to prepare the bank for the compliance examination.

CONSUMER NEWS

February 2 – 10 was National Consumer Protection Week, which prompted the bank regulatory agencies to focus on consumer information and events.

The FDIC Winter 2006/2007 Consumer News—Special Edition: Be Prepared, Be Informed, Be in Charge; Simple Strategies for Managing Your Money; is available at the following link:  http://www.fdic.gov/consumers/consumer/news/cnwin0607/index.html.  This Special Edition offers a collection of strategies that consumers can use to deal successfully with such important matters as:

·         Make sure you are financially fit;

·         Avoid bad deals and scams;

·         Protect all your deposits with FDIC insurance; and

·         Complain effectively and get results.

In other consumer news, the OTS has issued consumer guidance on understanding ARMS, including a link to the new CHARM booklet (Consumer Handbook on Adjustable-Rate Mortgages), as well as a link to Interest-Only Mortgage Payments and Payment-Option ARMS—Are They for You?, both developed jointly with the Fed (see the January 2007 edition of this newsletter).  The link to this guidance is:  http://www.ots.treas.gov/docs/7/777006.html.  The OTS also issued consumer guidance on gift cards, together with a link to a brochure entitled Consumer Fact Sheet:  Buying, Giving, and Using Gift Cards.  The link to this consumer information is:   http://www.ots.treas.gov/docs/7/777005.html.  This is similar to the OCC Bulletin 2006-34, http://www.occ.treas.gov/ftp/bulletin/2006-34.txt, discussed in the December 2006 edition of this newsletter.

The OCC provided a new Consumer Protection News webpage with consumer news, resources and links:  http://www.occ.gov/consumer/ncpw.htm. 

The Federal Reserve Consumer Information webpage has much helpful consumer information also:  http://www.federalreserve.gov/consumers.htm.

Comment:  Remember all of this information for consumers is supposed to be made widely available to the public.  Toward that end, the regulatory agencies permit the consumer information on their websites to be reprinted in whole or in part without advance permission.  The links can also be posted to the bank’s website.  Also see the Consumer Tips link on the IBAT Education Foundation webpage, http://foundation.ibat.org/.

DAYLIGHT SAVINGS TIME SHIFT IN 2007

When few people were paying attention in August 2005, Congress passed an energy bill that included extending Daylight Savings Time by about a month.  Beginning in 2007, Daylight Savings Time will start the second Sunday of March and will end on the first Sunday of November.  Many systems will remain programmed to start Daylight Savings Time on its old Sunday start date in April, not its new one in March.  Any time sensitive functions, including banking transactions, could be impacted, thus it is important that users of time sensitive technology assess their environments and develop the appropriate plans for applying the necessary changes.

Comment:  After over a year of mandatory preparation for Y2K, it seems strange that little has been said about the DST shift which is almost upon us.  Federal Reserve Financial Services is urging banks to update all computers used to connect to the Federal Reserve Banks with operating system patches provided by vendors (such as Microsoft):   http://www.frbservices.org/Electronic-Access/index.html.  On this page is also a link to the hardware and software requirements.  But don’t forget about other time sensitive functions, which in addition to the obvious, such as time stamps on ATM receipts, may also include less obvious but just as important functions, such as gaining access to bank premises or opening the vault. 

DEPOSIT INSURANCE ESTIMATOR

The FDIC has launched a new Spanish language version of its Electronic Deposit Insurance Estimator for consumers, also known as “Online EDIE.”  Online EDIE helps bank customers calculate deposit insurance coverage for their personal and business accounts.  Spanish language EDIE is virtually identical in content and function to the English version.  Both the English and the new Spanish language versions of Online Edie can be accessed at:  http://www.fdic.gov/deposit/deposits/.

Comment:  As you can see from this link, they have had the basic guide “Insuring Your Deposits” and the comprehensive guide “Your Insured Deposits” available in Spanish, Korean and Traditional and Simplified Chinese, as well as in English, for some time.  We applaud the FDIC for making the Spanish language enhancement to Online EDIE.  Also note that the “Rules for Revocable Living Trust Accounts” is now available in Spanish.

GO DIRECT MONTH—MARCH

Every March the U.S. Treasury has a Go Direct campaign, a promotional effort to encourage people who receive federal benefit checks to use direct deposit.  By partnering with Go Direct, in can help your bank:

• Increase your customer base.
• Reduce your operational costs.
• Reduce your check fraud risk.
• Enhance customer loyalty.
• Reduce your paper-based transaction costs.
• Leverage your marketing and public relations programs.

Here is the link to the Go Direct Month tool kit, which has links to tools you can use to promote the direct deposit message as well as a link to become a partner:  http://www.godirect.org/partners/Go_Direct_Month_.cfm. 

Comment:  There is no cost and even a non-binding agreement to become a partner, and that gives your bank the advantage of a Go Direct representative who can assist you in any of the promotional suggestions listed in the tool kit.  We believe you are already familiar with the reasons for promoting direct deposit of Social Security and other government benefits, so we are urging our members to become involved.

HOME EQUITY LENDING (TEXAS)

The Finance Commission has improved and expanded the home equity webpage on its website (http://www.fc.state.tx.us). The page now boasts more information and better organization.  The Commission’s interpretations of the constitution are organized between interpretations of Home Equity and Reverse Mortgage and interpretations of Home Improvement.  The legislative history is now divided between three topics:  Home Equity, Reverse Mortgage, and Home Improvement Lending.  Visitors to the webpage can pull up each Home Equity Lending Report from 1999 through 2005 with a single click.  To aid borrowers, links to the home equity foreclosure rules and to additional consumer resources have been added to the page.  Those interested in the appeal of the ACORN v. Finance Commission, et al, will find all filings in the 3rd Court of Appeals available on the page.  The Commission is certain that the new information and the reorganization will benefit the Citizens of Texas.  The link to the webpage is:  http://www.fc.state.tx.us/homeinfo/homeindex.htm.

Comment:  There is indeed a wealth of information here, and since it made its appearance in Texas on January 1, 1998, questions about home equity lending are nine years later still number one topic for phone calls and emails coming into the IBAT legal department.  Although we are not trying to discourage calls and emails, if you have a question about home equity lending, reverse mortgages or home improvement lending, you might want to check here first. 

Regarding the ACORN case, your editor and Karen Neeley attended the oral argument held on January 31.  Most of the arguments and questions from the justices involved whether or not an origination fee (which is interest under Texas usury law) is “interest” rather than a “fee” subject to the 3% fee cap.  In addition, the justices heard arguments on whether convenience checks can be used for HELOCs, whether oral applications start the 12-day cooling off period, which documents must be copied at closing, and the permissibility of using a power of attorney to close.  Now that we know where the judges’ interest in this case is directed, IBAT is preparing to file a post-submission amicus brief.

POWER OF ATTORNEY AND POD DESIGNATION (TEXAS)

The case of Terry L. Armstrong and Ronald Kemp v. J.C. Roberts, Deceased and Parties in Interest, Mary Lou Garrison, Richard Garrison and Pamela Buckley, http://www.8thcoa.courts.state.tx.us/opinions/HTMLopinion.asp?OpinionID=64054, is a dispute as to the ownership rights to three CDs that were set up by Mary Lou Garrison under a power of attorney granted by her father, J.C. Roberts.  The CDs were payable on death to Mary Lou Garrison, Pamela Buckley and Maime Jo Kemp, who died prior to her father and was survived by her two children, Terry L. Armstrong and Ronald Kemp.  When Mr. Roberts died, his will provided that all property owned by him passed to Maime Jo and Mary Lou.  Mary Lou filed a declaratory judgment seeking to establish that the CDs passed to her by virtue of the payable on death clause.  The declaratory judgment was granted, which led to this appeal.  While the court interpreted the grant of authority under the power of authority was broad enough to create the certificates of deposit, it also concluded that she lacked the authority to designate the payees on the death of the owner.  The court focused on Probate Code Section 439(b), http://tlo2.tlc.state.tx.us/statutes/pb.toc.htm, which says in pertinent part, “If the account is a P.O.D. account and there is a written agreement signed by the original payee or payees, on the death of the original payee or on the death of the survivor of two or more original payees, any sums remaining on deposit belong to the P.O.D. payee or payees…(emphasis added by court).  Therefore, Mary Lou, as agent under a general power of attorney, had the right to set up the accounts, but she did not have the right to designate the beneficiaries.

Comment:  We believe that this court’s ruling is not supported by the power of attorney act.  While we don’t believe that it is good practice for the agent under a power of attorney to name him- or herself as a beneficiary, the law doesn’t actually prohibit it.  Moreover, in many cases, the attorney in fact is actually continuing a plan already established by the grantor of the power of attorney.  Although a bank is not a party to this case, it certainly has implications where a power of attorney is involved.  IBAT will be filing an amicus curiae brief in a motion for a rehearing on this important issue.

PREDATORY LENDING—FDIC’S SUPERVISORY POLICY

• Making unaffordable loans based on the assets of the borrower, rather than on the borrower’s ability to repay the obligation.
• Inducing the borrower to refinance a loan repeatedly in order to charge high points and fees when the loan is refinanced (“loan flipping”); or
• Engaging in fraud or deception to conceal the true nature of the loan obligation, or ancillary products, from an unsuspecting or unsophisticated borrower.

When examiners encounter loans they consider to be predatory, they will be classified as unsafe and unsound.  This, in turn, could lead to taking supervisory actions.

While at the same time this supervisory policy aims to eliminate predatory lending, it also encourages financial institutions to help meet the credit needs of their entire communities, including low- and moderate-income areas.  Well-informed consumers are less likely to be the victims of predatory lenders and are more likely to make informed choices, and the FDIC mentions some of its own excellent resources in that regard.  And finally, there is the gentle reminder that when a bank’s CRA performance is reviewed, the institution’s efforts to provide financial education and other retail services are a positive consideration.

Comment:  This is somewhat similar to the interagency final guidance on nontraditional mortgage products that was discussed in the October 2006 edition of this newsletter, http://www.fdic.gov/news/news/press/2006/pr06086b.pdf.  Making credit available to consumers with limited or problem histories is a good thing and is to be encouraged.  Predatory lending to consumers with limited or problem histories is a bad thing and is to be discouraged.  Both guidances help distinguish between the two.

REPORTS AND STUDIES

The FDIC State Profiles for the Third Quarter of 2006 is available at the following link:  http://www.fdic.gov/bank/analytical/stateprofile/index.html.

The Federal Reserve Banks announce new studies to examine the nation’s check and electronic payment usage, http://www.federalreserve.gov/boarddocs/press/other/2007/20070116/default.htm.

The FDIC State Profiles for the Third Quarter 2006 are available at the following link:   http://www.fdic.gov/bank/analytical/stateprofile/index.html.

The OCC Annual Report for the Fiscal Year 2006 is available at the following link:  http://www.occ.treas.gov/annrpt/annual.htm.

FinCEN has issued the seventh edition of The SAR Activity Review By the Numbers, which is available at the following link:  http://www.fincen.gov/sar_review_by_the_numbers_issue7.pdf.

The Beige Book for January 2007, published by the Fed, is available at the following link: http://www.federalreserve.gov/fomc/beigebook/2007/20070117/default.htm.

The Fed’s January 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices is available at the following link:  http://www.federalreserve.gov/boarddocs/snloansurvey/200701/default.htm.

The Economic Letter, published by the Federal Reserve Bank of San Francisco, examines the historical behavior of banks with large concentrations of CRE, http://www.frbsf.org/publications/economics/letter/2007/el2007-01.html.       

SERVICEMEMBERS CIVIL RELIEF ACT (SCRA) NOTICE

Comment:  Remember that although the SCRA Notice is to be sent to all homeowners in default on a residential mortgage, regardless of whether they are known to be in the military, this is in addition to, not instead of the Notification to Homeowner  and the brochure “How to Avoid Foreclosure” to be sent to all delinquent homeowners required by Mortgagee Letter 2002-14, http://.hudclips.org/sub_nonhud/html/nph-brs.cgi?d=MLET&s1=02-$[no]&op1=AND&SECT1=TXTHLB&SECT5=MLET&u=../html/shortcut.htm&p=1&r=14&f=G.  Also, in addition to the Question and Answers for Lenders regarding the SCRA put out by HUD, http://www.hud.gov/offices/hsg/sfh/nsc/qasscra2.cfm, the bank regulators have also issued helpful guidance, such as the OCC Advisory Letter 2004 - 8, http://www.occ.treas.gov/ftp/advisory/2004-8.txt.