On May 20, 2016, the Texas Supreme Court issued opinions concluding that the requirements in the Constitution for home equity loans were lien validity ones and do not create substantive rights for consumers.
The lien validity is decided at loan inception. Thus, a contractual acknowledgement of the duty to deliver the cancelled note and recordable release satisfies that duty. Failure to actually perform that duty is a breach of contract. The penalty for breach could be forfeiture of principal and interest unless the lender cures the breach through one of the Constitutional remedies – if applicable.
Because the requirements relate to the lien validity, noncompliance creates a void loan, which can be cured by complying with the cure provisions in the Constitution. But this also means that the statute of limitations does not apply with regard to the loan requirements.
Staff contact: Shannon Phillips, firstname.lastname@example.org, 512-275-2221
Why not resolve to support the community banking industry with a monthly contribution to the IBAT PAC?
We’ve made it easier than ever before with automated monthly contributions from your credit or debit card.
By signing up for a monthly contribution to the IBAT PAC, you’re supporting the Leadership Division Board of Directors’ “500 for the Future” campaign – an ambitious goal to raise annual PAC giving to $500,000 by 2020.
So, go ahead, sign up for a monthly gift of at least $20. Click here to download the contribution form, and thank you for supporting IBAT’s work in Austin and Washington, D.C. on your behalf.
In a letter to Senators Cornyn and Cruz, IBAT President and CEO Chris Williston urged their sponsorship and support of S.2707, introduced by Senators Tim Scott (R-SC) and Lamar Alexander (R-TN). As mentioned in the previous story, this bill would nullify a proposed final Department of Labor rule to expand the number of workers qualifying for overtime pay by doubling the threshold for qualifying employees from $23,660 to $47,476. The rule is set to go into effect in December 2016.
Over the course of the past few weeks, IBAT has heard from many members about the potential devastating effects the proposed rule would have on personnel and administrative costs as well as the detriment to employee morale.
“The DOL-proposed rule is just one more intrusion, resulting in yet another increased cost that will lead to future consolidation in our industry and have a dramatic impact on all small business,” Williston wrote in the letter.
IBAT members are encouraged to contact Senators Cornyn and Cruz and urge their support and swift passage of the legislation.
Staff contact: Chris Williston, email@example.com, 512-474-6889
The final step of the primary season is upon us. Today is Election Day so get out and vote, if you haven’t done so already. Voter information is available on the Secretary of State’s website.
Based upon the results of polling in the various districts, the IBAT PAC is supporting the following candidates in today’s runoff elections:
- Congressional District 19 – Jodey Arrington
- Senate District 1 – Bryan Hughes
- Senate District 24 – Dawn Buckingham
- House District 54 – Austin Ruiz
- House District 64 – Lynn Stucky
- House District 73 – Douglas R. Miller
- House District 128 – Wayne Smith
Voter turnout in these races is always abysmally low, so your vote is that much more important. We encourage you to cast your ballot and ask that you stress the importance of participating in the process to those in your circles of influence.
Staff contact: Steve Scurlock, firstname.lastname@example.org, 512-275-2226
Last week, the Department of Labor (DOL) published the final rule regarding overtime exemptions under the Fair Labor Standards Act, commonly referred to as the “Overtime Rule.” The final rule focuses primarily on updating the salary and compensation levels needed for executive, administrative and professional workers to be exempt.
For community banks, the key compliance issues of the overtime rule include:
- Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker). This is going to impact many employees who are currently classified as exempt and earn less than $913 per week or $47,476 annually;
- Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004). The DOL rule-making did not make changes to the “standard duties test.”
The effective date for compliance with the rule is December 1, 2016. That means community bankers have six months to determine which employees are affected, whether to reclassify those employees and execute a communications strategy.
Please click here for information about DOL rule consequences.
Lastly, IBAT is supporting Senate Bill 2707 that would effectively nullify this rule. S.2707 would require the DOL to first conduct an analysis of both the hard and soft costs on employers to ensure this rule (and any subsequent rule) does not inadvertently reduce wages and curb hiring.
Staff contact: Kelly Goulart, email@example.com, 512-275-2231
By now, you should have received the 2016 Best of Community Banking (BOCB) Awards mailing that includes the brochure and entry form. 2016 marks the 25th year of this award competition, which provides an opportunity for you to showcase your bank, employees and officers, and the contributions made to keep your local community thriving and prosperous.
Categories include architectural design, community service, financial literacy and marketing. Entries are due to IBAT by 5 p.m. on Monday, June 27, 2016.
Special thanks to this year’s sponsors:
- Bank Compensation Consulting
- BKD, LLP
- Federal Home Loan Bank
- Fenimore, Kay, Harrison and Ford, LLP
- Garland Heart
- Rogers-Ford, L.C. Architecture and Interior Design
All entries will be displayed during the IBAT Annual Convention at La Cantera Hill Country Resort in San Antonio, September 24-27, 2016. Gold Eagle Award winners will be recognized during the Best of Community Banking Awards luncheon on September 26, 2016.
Staff contact: Mae Beth Palone, firstname.lastname@example.org, 512-275-2219
The Texas Supreme Court released its opinions in two important cases relating to home equity lending on May 20, 2016. In Garofolo v. Ocwen Loan Servicing, LLC, the court answered certified questions from the U.S. Fifth Circuit Court of Appeals. The borrowers in that case paid off their loan. Ocwen filed a release of lien rather than provide it to the borrowers but did not return the cancelled note even after a demand from Ms. Garofolo. The original loan documentation incorporated all of the requirements in the Constitution for lien validity, including the condition that the note would be returned and the borrower would receive a release of lien in recordable form.
In response to the first certified question, the Supreme Court concluded that the litany of terms and conditions in the Constitution must be satisfied—at the time the loan is made—in order to have a valid lien that is subject to foreclosure. The loan documentation, by incorporating the substantive requirement for returning the cancelled note and providing the lien release, satisfied this. The court went on to say that these conditions are not “substantive constitutional rights and obligations” but rather affect lien validity.
In response to the second question as to whether forfeiture of principal and interest was the remedy for failure to comply with the lien validity criteria, the court said yes—but not in this case! So, breach of contract remedies could include forfeiture if the lender fails to use one of the cure provisions in the Constitution. The saving point for Ocwen in this case was the court’s determination that none of the specific cures were applicable and the “catch-all” cure of paying $1,000 and offering to refinance the remaining balance was “ridiculously futile” and thus not applicable. IBAT filed an amicus curiae brief in this matter along with TBA and TMBA that argued the same point approved by the court as to the first question. However, we had suggested that the appropriate remedy was traditional “breach of contract” rather than forfeiture.
The second case, Wood v. HSBC Bank USA, N.A. and Ocwen Loan Servicing, LLC, raised the issue of statute of limitations. Applying the logic of the Garofolo case, the court concluded that liens securing constitutionally noncompliant home equity loans are simply invalid until cured. The lien is void, not voidable. Thus, they are not subject to any statute of limitations. But the court also concluded that there was no claim for forfeiture because the constitutional requirements relating to lien validity do not create substantive constitutional rights and obligations.
Below are key take-away lessons learned from these cases:
- Home equity loan documentation should include an acknowledgement of some sort relating to all of the requirements for lien validity;
- If the borrower sends a cure notice, respond in 60 days. Only exception—situations not covered by a specific provision in which the demand is made after the loan is paid off;
- Statute of limitations defense appears to be finally put to bed; and
- Constitutional requirements apply to lien validity and are not independent substantive constitutional rights.
The duties test was not changed for administrative exemption. Nonetheless, the huge change in the salary test will disqualify many employees who are currently classified as exempt from the overtime rules. Many of these employees are paid on a salary rather than hourly basis. Below are some possible responses:
- If employee is close to the exemption level, consider a modest salary increase to preserve the exemption.
- Keep employee on salary but require him/her to keep records of time worked. If hours go above 40 in a week, pay overtime in accordance with the formula. Here is a worksheet that explains how to calculate.
- Convert employee to hourly pay scale. Keep records of time worked. Pay overtime hours at 1.5 times hourly rate. To some employees, converting them to hourly rate is considered a demotion of sorts. So although it is simpler to manage, it has morale implications.
Perhaps the most difficult issue in implementing the change from exempt to non-exempt is the time keeping requirement. However, these are mandated by the Fair Labor Standards Act (FLSA). Here is a fact sheet on recordkeeping requirements of the FLSA.
In this age of instantaneous information distribution, it may seem incongruous that this week’s biggest market-moving news chronicled an event that took place almost a month ago. Surprisingly to many, the bond market seemed to be surprised by what was contained in the FOMC’s post-mortem for its April meeting; particularly in light of public statements made by some FRB Presidents that were clearly engineered to avoid catching markets by surprise. The fact that the market chose to ignore the not-so-subtle hints of what was to come may be a reflection of diminished Fed credibility and the result of perhaps crying wolf too often. The thing is, the wolf may eventually show up.
IBAT’s Dine and Demo, a successful new series, kicked off last month. The next webinar will take place on May 24, 2016, and now is the perfect time for bankers to register. In case you missed the first one and are wondering, what is Dine and Demo?
The IBAT Dine and Demo series is a quarterly lunchtime webinar, noon-1 p.m., in which up to seven companies provide product demonstrations in seven minutes or less. There is no cost for bankers to attend so order in lunch, gather your team around the conference room table and see the best that industry providers have to offer from the comfort of your own bank.
The lineup for the second webinar includes CalTech and S&P Global Market Intelligence, along with five pending companies. It promises to be a well-rounded group worthy of your time.
We’ve heard from bankers about your lack of time to meet with providers – Dine and Demo is the solution. We highly encourage you to participate in this free program on May 24, 2016. Register and learn more about Dine and Demo here.
Staff contact: Julie Courtney, email@example.com, 512-275-2227
Congressman Kenny Marchant has introduced two bills to provide additional flexibility in tax structure and capital options for community banks. IBAT submitted written testimony on the Capital Access for Small Business Banks Act (H.R. 2789) and the Community Bank Flexibility Act (H.R. 3287) to the Ways and Means Committee indicating our strong support for these bills.
H.R. 2789 raises the shareholder limit for S-Corp banks to 500 and allows them to issue preferred stock. H.R. 3287 allows community banks to organize as an LLC, thus enjoying pass-through tax treatment without the restrictions of a Subchapter S entity.
“IBAT appreciates the efforts of Pat Kennedy in continuing to push innovative solutions to expand and enhance pass-through tax treatment for community banks,” said Chris Williston, IBAT President and CEO. “We continue to be exceedingly grateful to Congressman Marchant for introducing these important bills, as well as his longtime support of the community banking industry and IBAT.”
Staff contact: Steve Scurlock, firstname.lastname@example.org, 512-275-2226
IBAT is pleased to announce Dell's second quarter discounts for IBAT member banks, bank employees and customers, just in time for graduation season! If you haven't decided what the perfect gift is for the grad in your life, we hope the following offers will make your decision easier:
- 39% off OptiPlex/Latitude/Precision Workstations/Power Edge Servers priced $899 and up;
- Extra 10% off select XPS and Inspiron PCs; and
- Extra 5% off select Dell electronics and accessories.
To take advantage of these discounts, please visit Dell's website. In order to maximize your savings, remember to include the unique Dell/IBAT link number GS126658178. We have created a flyer to make it easier for you to share these discounts with everyone in your institution.
Staff contact: Curt Nelson, email@example.com, 512-275-2240
FinCEN issued final rules under the Bank Secrecy Act on customer due diligence requirements for: banks; brokers or dealers in securities; mutual funds; futures commission merchants; and introducing brokers in commodities. The rules contain explicit customer due diligence requirements and include a new requirement to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and exemptions.
In our September 11, 2014 comment letter, IBAT pointed out several shortcomings in the proposed rule. FinCEN made several changes to the final rule, including some recommended by IBAT. FinCEN clarified the definition of legal entity customer, extended the transition period from one year to two years, eliminated the requirement that a financial institution use the Certification Form, expanded the categories of excluded legal entities, simplified the requirements on charities and nonprofits, and clarified that financial institutions are not required to periodically update beneficial ownership information.
“While the beneficial ownership rule will increase some record keeping, we are pleased that our comments in concert with others apparently helped to moderate the final text,” said Karen Neeley, IBAT General Counsel.
Staff contact: Shannon Phillips, firstname.lastname@example.org, 512-275-2221