Bank Lawyer's Blog

No Notice? No Worries (Maybe)!

While the blogsphere is today ablaze with equal parts rage and glee over the decision of the SCOTUS to uphold (most of) Obamacare, some of us took note of the fact that a bill moved out of a House committee that could help squelch a rash of lawsuits, some legitimate and some questionable, arising out missing physical fee notices on ATMs. The ever-vigilant folks at the NAFCU are keeping their eyes peeled for progress on this score, since credit unions, as well as banks, are being targeted by attorneys who specialize in discovering missing notices on ATMs in all regions of the country.

The House Financial Services Committee voted [yesterday] morning to report out H.R. 4367, a bill sought by NAFCU to repeal the ATM placard requirement on fee disclosures under the Electronic Funds Transfer Act. The bill awaits House action.

[...]

As of Tuesday, H.R. 4367 has 130 cosponsors. A similar measure, S. 3204, has 18.

H.R. 4367, introduced by Reps. Blaine Luetkemeyer, R-Mo., and David Scott, D-Ga., had 130 cosponsors as of Tuesday. A similar Senate measure, S. 3204, has 18 cosponsors.

In a highly partisan year, it's nice to see that at least some legislation that could do banks some good isn't completely dead in the water. We'll see how this fares during the rest of this long, hot summer.

This is going to take a Congressional fix because it doesn't appear to be anywhere on the CFPB's agenda for a regulatory solution, notwithstanding some previous tongue-in-cheek "wishing" to the contrary.

Business Judgment Rule In California Continues On Its Tortured Path

Kevin LaCRoix recently ran a post that discussed, among other things, the continuing uncertainty in California concerning the applicability of the Business Judgment Rule to officers of a bank (as opposed to the directors, to whom the rule clearly applies). We've discussed this issue previously (most recently, here and here). It's of major concern to bank officers, because the FDIC has been aggressive in its attempts to eviscerate what many corporate officers considered a good faith protection from the FDIC's Monday morning quarterbacking of decisions that seemed to be reasonable when made, but turned out poorly for the bank.

As Kevin notes, California courts that have ruled on the issue have issued contrary decisions, with some holding that California law does provide officers, as well as directors, with the protection afforded by the Business Judgment Rule, and other courts holding that the rule applies only to directors in California.

Kevin's latest post discusses a June 7, 2012 ruling by a federal district court judge in California that found that while officers were not entitled to the protections of the Business Judgment Rule that is incorporated into California statutory law, they may be able to raise the defense of the Business Judgment Rule as an affirmative common law defense.

In the decisions, which can be found here, Eastern District of California Judge Lawrence O’Neill held that the defendant officers cannot rely on the statutorily codified business judgment rule under California Corporations Code Section 309, because the statute by its terms refers only to officers not directors.

However, with respect to the defendant officers’ efforts to rely on the common law business judgment rule, Judge O’Neill also denied the defendants’ motion to dismiss -- but not on the basis that they could not rely on the business judgment rule; rather, he said only that “the business judgment rule is an affirmative defense which involves factual issues to preclude its application to dismiss the complaint’s claims.”

 While Judge O’Neill did find that the defendants’ entitlement to rely on the common law business judgment rule is a factual issue, what he did not say is that the defendants were not entitled to rely on it as a matter of law. Which can be interpreted to suggest at least by negative inference that there is a common law business judgment rule separate and apart from the statutory provision, and defendants can rely on the common law rule, if they can establish as a factual matter that the qualify for the rule’s protection.

Well, in this case, a "negative inference" is better than no inference at all. On the other hand, as attorney Ronald Stevens, cited in one of my previous posts, asserts, there's no logical reason not to extend the rule to officers and the failure to do so "would produce a result that in the long term might well reduce the pool of qualified individuals willing to serve as bank directors and officers."

This sounds like it's a problem that might take a legislative fix. What are the chances of getting that done in California in the foreseeable future?

Law Firms Hanging Out The "No Openings" Sign

Evidence supporting the contention of critics that law school has become a "shell game" in which law school students are the "marks" continues to pour in. One of the latest pieces is the news that only 49.5% of of the class of 2001 have found jobs in private practice, the lowest level since 1994.

In most of the 38 years for which NALP has collected employment information, the percentage of jobs in law firms has been in the 55 percent to 58 percent range and has been below 50 percent only once before 2011.

The overall employment rate for new law school graduates is 85.6 percent, the lowest it has been since 1994, when the rate stood at 84.7 percent.

There's no question that the economic downturn since 2008 has been the worst that most of us alive today have ever seen. In addition, entering law school in the fall of 2008, right as Lehman Brothers collapsed and the world's economy went down the circular porcelain facility, was timing best described as "unfortunate." Nevertheless, with so many lawyers already making this country one overrun  by sharks and sharkettes, you have to ask yourself why anyone in their right mind would voluntarily choose to enter this field.

Being a Pollyanna, I did find the gold nugget in this pan of pebbles and river mud.

For the class of 2011, employment in business was 18.1 percent, the highest that NALP has measured.

There you go: the law practice's loss is the business world's gain. Or not, depending on where you stand on the question of lawyers and the right to exist.

Pine(s) Not For The Practice Of Law

When we last referred to the curious case of Michael T. Pines, we quoted a press report that he'd been "disbarred" by the state of California. Technically, it appears, he'd been placed on "involuntary inactive status" by the State Bar Court. This month, a State Bar Court of California Judge recommended to the California Supreme Court that Pines be disbarred.

In her decision and order of inactive enrollment filed June 11, State Bar Court Judge Lucy Armendariz wrote that State Bar rules allow for the disbarment of Michael T. Pines because he failed to participate in the disciplinary proceedings against him, despite receiving adequate notice and opportunity.

Even so, the judge wrote the facts in the case "support the conclusion that respondent is culpable as charged."

According to another press report, "[t]he California Supreme Court upholds the majority of state bar disbarment recommendations." If that's the case, I think Pines is unlikely to fall within the minority. He didn't care enough about retaining his law license to even attempt to defend himself. I think it's unlikely the Supreme Court will have any greater interest in keeping Pines on the bar rolls.

I've been unable to find press reports as to the status of the criminal charges filed against Pines. Since his actions testify to his contempt for the law, I'm hoping that he gets a Black's Law Dictionary thrown at his head. That might not be very neighborly of me, but what do you expect from a curmudgeon?

Speaking of which, when I referred last week to the CEO of a West Texas bank as being a Gus McCrae-type Texan, that was not inaccurate. On the other hand, I think he may even be more of a Virgil Cole-type.

Image source: Gyan Shrosbree

Texas Is A State Of Mind

Someone had to take on the CFPB, the Goldman Sachs of regulatory agencies, the great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like it might be a viable bank. Who better than a bank from the only state that was once an independent nation? No, I'm not talking about Hawaii, I'm talking about the Lone Star State.

A Texas community bank is leading a lawsuit against the Consumer Financial Protection Bureau.

The State National Bank of Big Spring will file a lawsuit Thursday afternoon in the U.S. District Court for the District of Columbia. The suit will challenge certain provisions in the Dodd-Frank Act as unconstitutional, with a focus on the creation of the CFPB. The Competitive Enterprise Institute and the 60 Plus Association will also join the case.

The parties complained in a press release Thursday that there are "no checks and balances" in certain provisions of Dodd-Frank, while taking issue with the "unrestrained power" that the government gives to the CFPB.

"No other federal agency or commission operates in such a way that one person can essentially determine who gets a home loan, who can get a credit card and who can get a loan for college," Jim Purcell, State National Bank's chief executive, said in the release. "Dodd-Frank effectively gives unlimited regulatory power to this so-called Consumer Financial Protection Board ... with a director who is not accountable to Congress, the President or the Courts. That is simply unconstitutional."

The plaintiffs are specifically targeting Title I and Title X in Dodd-Frank, which formed new agencies to monitor systemically important enterprises and created the CFPB.

The plaintiffs are represented by C. Boyden Gray, former White House counsel, which appears to demonstrate that the people behind this lawsuit are not paupers. It also demonstrates that this isn't a lone Texas community bank drawing a line in the sand. Still, there's something appealing about the front man for this group being a Gus McCrae-type Texan standing in the middle of a Big Spring street, spitting a load of chawed-up Redman on Recess Richie's patent leather wingtips, and drawling "That dog won't hunt, Hoss."

American Banker reporter Rachel Witkowski correctly observes that "[i]t was widely assumed that lawsuits would be filed against the CFPB immediately after Richard Cordray was appointed the director in January. But so far, very few lawsuits have been filed, nor have they been as broad as State National Banks's allegations."

It takes a certain amount of daredeviltry to be the first horse out of the chute in this race. Texans, however, have a history of living on the fine edge between daring and recklessness, so it shouldn't come as a surprise that the lead plaintiff is located in a part of the state where wildcatters have sunk as many dry holes as gushers.

The CFPB turned up its aristocratic nose at the rubes who filed this action.

"This lawsuit appears to dredge up old arguments that have already been discredited," said Jen Howard, a CFPB spokeswoman. "We're going to keep our focus on the important work Congress created us to do — making markets work for consumers and responsible providers."

"Discredited" by whose Supreme Court? You keep focusing on "the important work," Jen. Keep your eyes firmly fixed on the stars above right up until the instant a herd of stampeding longhorns plows you under the sod.

Hubris: it's not just for Greeks.

CFPB delenda est!

Stop Me If You've Heard This One Before

It's not merely the fact that former Wells Fargo CEO Dick Kovacevich complained publicly and loudly in 2008 that Hank Paulsen made him a TARP offer he didn't want but couldn't refuse, it's that, nearly four years later, he..won't...stop...ranting...about...it, that leaves some listeners amazed, others stupified, and still others screaming for someone to stick a knife in their neck in order to end the pain. Moreover, he's gone from "I didn't want it or need it but they threatened me" line to "TARP is likely to cause the end of life on Earth, at least as we know it."

Former Wells Fargo Chairman and CEO Dick Kovacevich says the federal government's bank bailout during the depths of the financial crisis was an "unmitigated disaster" and laid much of the blame for the financial crisis on "ineffective regulators."

"The decision by the U.S. Treasury and the Federal Reserve in October 2008 to make banks take TARP money even if they didn't want it or need it was one of the worst economic decisions in the history of the United States," Kovacevich told about 100 people attending a Stanford Institute for Economic Policy Research event Tuesday evening.

Kovacevich then offered a roster of reasons fueling his criticism of the government's Troubled Asset Relief Program, including "spooking the financial markets," damaging the reputation of financial institutions who did nothing wrong, and institutionalizing the concept that some institutions are too big to fail.

Kovacevich also cites TARP as the genesis of Dodd-Frank, the Ebola and AIDS viruses, as well as the horror now known as "Charlie Sheen."

Dick claims that any pundit who argues that TARP saved the financial system from a China Syndrome-like meltdown is a mere government apologist and spinmeister. In fact, Dick declares that TARP caused the financial meltdown and stock market collapse by stampeding the markets, as if the pre-TARP failure of Lehman Brothers was nothing more than a minor blip on the radar screen. He didn't say this exactly, but I think Dick also suspects that TARP is the reason that supermodel Linda Evangelista has repeatedly spurned his offers of concubinage. As a parting shot, he also blames most of the failed banks on "poor regulation."

This is what we call the "Dick-Cheney-Scattergun-To-The-Face" approach to criticism. If you load up on Double-O buckshot and blast away at close range, you're bound to hit something. If you're really lucky, like the other Dick, you'll bag a lawyer.

Banks Coming Up Short On Short Sales

The tales of dastardly banks tricking unsuspecting, innocent borrowers into signing away their lives so that the top 1% can feast on filet mignon (medium rare, of course) and drink the blood of orphans never cease. One such story hit the newswires last week and made us seethe with righteous rage over the way banks are screwing homeowners left, right, up, down, and from the Fourth Dimension.

More effort should be made to prevent short-sale fraud so that investor returns are maximized, said Gagan Sharma, chief executive of Titusville, Pa.-based servicer BSI Financial.

[...]

Twelve states, including Arizona, California and Florida, had more short sales than REO sales for the month of January.

The number of suspicious mortgage activity reports filed by financial institutions grew 31% to 92,028 in 2011 from 70,472 in the previous year, according to the Financial Crimes Enforcement Network.

Suspicious activity reports don’t prove a crime was committed, but they do indicate the presence of a growing problem.

Sharma referenced an investor at a conference he recently attended who said if a short sale sells within a week, that means he underpriced it. “He actually starts looking at it as a fraud flag. It was a very interesting angle that I had never thought of. Especially in the short-sale market, that’s what a lot of investors and servicers like us are looking at.”

Oh, my bad!

It's the lenders who are getting screwed by fraudulent short sales, not the borrowers. That a bank might be the "screw-ee" as opposed to the "screw-or" is so outside the main stream meme that you can see how I might have misconstrued the story's import on a first read-through.

Never mind. Forget this abberation and return to the spittle-spewing about horrific lenders licking the sweat off the brow of the proletariat, aided and abetted by judges who are so corrupt that they actually follow the law. 

A Rhodium Tongued Devil

The reports in the press that Ted Olson charges $1800 an hour ($180 per tenth of an hour, $30 a minute, and 50 cents a second) reminded me of a recent lunch conversation I had with the Deputy General Counsel of a large Texas-based financial institution. He discussed a conversation he had with a Los Angeles-based partner of one of the nation's largest law firms. They were discussing the attorney's potential engagement, and when he indicated that his hourly rate was $700 an hour, my lunch mate advised him that he'd better talk fast and every word out of his mouth had better be pure gold.

Olson must yak as fast as that FedEx speed-talker and every syllable must be pure rhodium.

Thank God my rate's low enough that I can occasionally yawn and even throw in the odd "Uhhh" or "Ummm" without keeling over with guilt.

The Latest Strong Arm Tactics From Large Cities

Critics of the Community Reinvestment Act and similar efforts to compel lenders to lend to lower income borrowers in lower income neighborhoods during the last twenty years or so, and who blame such efforts for the subprime mortgage market meltdown (a proposition I never supported), must be apoplectic over the latest efforts by some large cities to replicate the sins of the past. According to a recent article by Andy Peters in the American Banker, some cities are using the stick of municipal deposits to beat some low-income loans out of banks.

City councils in New York, Los Angeles and Pittsburgh have passed ordinances this year requiring banks that hold city government deposits to provide detailed accounts of their lending practices in low-income communities. Boston, Milwaukee, Minneapolis and San Diego are considering similar proposals.

Banks could lose deposits if city governments determine that they aren't doing enough in low-income neighborhoods. Lending data, broken down by neighborhood, will be made available for public inspection.

Cleveland and Philadelphia pioneered the concept of so-called responsible banking acts several years ago.

As banking lawyer Warren Traiger points, the dreaded CRA makes such efforts superfluous. When did that ever stop local hacks from PR stunts meant to convince voters that the city solons were sticking it to the big bad bankers?

Consumer advocates disagree, of course, on the basis that the CRA is a bust and that federal bank regulators aren't doing enough to make banks make the high risk loans to people who are poor credit risks and who otherwise have to resort to payday lenders, pawn shops, and guys like Paulie Walnuts. There's a reason that loans to lower-income, high risk borrowers carry high fees and interest rates: those borrowers default in greater numbers than lower risk, higher income borrowers. Banks shouldn't be taking greater credit risk unless they receive higher returns on the loans, to make up for the higher losses they'll take on the loans that aren't paid back. Pretty simple stuff. Nevertheless, municipal pols don't care about credit risk, rates of return, blah...blah...blah. They care about how this all looks to the voters whose favor they're trying to curry in order to retain their political positions.

I think Mike Bloomberg got it right when he recently vetoed New "Yawk" City's attempt to enact a similar measure. As the New York Bankers Association complained, such legislation adds "an unneeded layer of regulation that could discourage banks from doing business with city governments."

We don't need smoke and mirrors to improve people's lives. We need more private sector jobs. A lot more private sector jobs. In the words of this nation's First Black President, "It's the economy, stupid."

How About Having Some Grey Matter Occupy Your Cranium?

In a story that highlights the utter mindlessness of a portion of the Occupy [Insert Placeholder] Movement, today's American Banker reports that an Occupy Movement organization, Neighborhoods Organizing for Change [that we've been waiting for?], decided to occupy a house in Minneapolis after the lender foreclosed on the home and the borrower was evicted. The lender foreclosed for a very simple reason that was outlined in three short sentences.

In this case, the former homeowner, David Cruz-Sanchez, got a $194,000 mortgage to buy the house in July 2007. He stopped paying his mortgage in August 2010 and Freddie took the home back at a sheriff's foreclosure auction in August 2011. Cruz-Sanchez and his wife continued to live in the home until April when they were evicted.

The couple's adult children had contacted a local nonprofit, Neighborhoods Organizing for Change, which decided to occupy the house to protest foreclosures even though Freddie had already legally taken back the property.

The couple lived almost two years in the house without paying a dime to their lender. Sounds like a gross injustice to me. To the lender, that is.

Freddie Mac, which owned the loan and now owns the house, told reporters that the servicer tried to contact the borrower to discuss alternatives to foreclosure, but that the borrower never responded to the servicer's outreach efforts. If there ever was a case where protests were not justified, this was it. Nevertheless, like the nimrods who occupied a Wells Fargo branch in Denver to protest Bank of America's practices, the activists here don't care about equities, just mindless rage. They broke into the house previously by tearing boards off of the windows, and the lender has replaced the boards with steel plates. Nevertheless, the Occupy folks intend to make another assault on the home. I guess they'll bring acetylene torches and crow bars with them, this time.

I realize the political realities in a state like Minnesota, where there are many Blue State Bubble Babies who see nothing wrong with destroying someone else's property as long as the "someone else" is an enemy of the state, like a bank or any entity associated with banks. Nevertheless, sooner or later,the police have to enforce the law, don't they? If not, owners will start resorting to "self-help" remedies like guys in aviator sunglasses, just back from the Hindu Kush with a bad attitude and an M4, or--my personal favorite--a pair of Rottweilers named "Starsky" and "Hutch" who haven't been fed for two days. History teaches us that if the King's Hand does not dispense justice, lesser, though, firmer hands will. At some point, trespassing and damaging property rises to level of a felony, and the crime ought to be taken seriously.

As to those who claim that any crime is justified by the Occupy crowd because no bankers have done a perp walk, I answer: didn't your mommy tell you that two wrongs don't make a right? No? Well, since I'm sure you're still living at home, why don't you call her on the cell phone she paid for and ask her?