In This Issue:
FINANCIAL REFORM: HERE WE GO!
As everyone knows, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Public Law 111-203) (“Act”) was signed into law on July 21, 2010. For the next few months, and then over the next few years, we will assist clients in understanding the nuances essential for implementing the hundreds of provisions in this Act. Right now, we offer the following insights:
Enhanced Penalties for Violations of Consumer Laws – Compliance is More Important than Ever. Title X of the Act establishes the Bureau of Consumer Financial Protection (“Bureau”) which, between 6 months and 18 months from now, will assume regulatory control over all of the federal consumer financial laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, Truth in Savings Act, etc. When regulatory oversight transfers to the Bureau, its enforcement powers will be enhanced by the increased civil penalties it can recover for any violation of a federal consumer financial law: $5,000 a day for any violation; $25,000 a day for reckless violations; and $1,000,000 a day for knowing violations. Every provider of consumer financial services will need to become familiar with the Bureau and its rules. For more information, please contact Chris Rahl
S.A.F.E. Act Registration for Bank Mortgage Loan Originators. The Act transfers to the Bureau responsibility for all aspects of the S.A.F.E. Mortgage Licensing Act, including implementing the long-awaited registration requirements for bank employees (and bank subsidiary employees) who are mortgage loan originators. The Act pushes the mandate for the Bureau to implement that registration requirement to July 21, 2011. However, on July 28, 2010, the federal agencies originally charged with the obligation finally issued rules
to implement that registration requirement. Assuming the federal agencies’ final rules are acceptable to the Bureau, the rules will become effective October 1, 2010, but registration will not be available until the federal agencies announce that the registry is ready which, at the earliest, will be January 2011. Once registration is available, bank (and bank subsidiary) mortgage loan originators will have 180 days to comply with the initial registration requirements. For more information, please contact Chris Rahl
Residential Mortgage Lending. We will be providing detailed guidance on the numerous and significant changes imposed by Title XIV of the Act concerning residential mortgage lending and brokering (including new disclosures, prohibited practices, lending requirements, limits on broker and lender compensation, expanded HOEPA coverage, requirements for loan servicing, appraisal requirements, and much more). Regulations, which are needed to implement nearly all of the new residential mortgage changes, must be issued no later than 18 months after transfer of oversight to the Bureau. If regulations are not issued by 18 months after the Bureau gets oversight, then the statutory language will take effect (some time between mid-July 2012 and mid-January 2013). Note: On a somewhat faster pace, the model form required to combine TILA and RESPA disclosures must be made available for public comment not later than 12 months after transfer of oversight to the Bureau. For more information, please contact Chris Rahl
Make Room for State Law. Title X of the Act narrows the federal preemption of State laws that national banks, federal savings associations, and their subsidiaries enjoy. Effective between 6 months and 18 months from now, State consumer financial law will apply to subsidiaries and affiliates of national banks and federal savings associations, and banks and associations themselves will enjoy federal preemption of a State consumer financial law under a significantly narrower legal standard. This makes it more important now, more than ever, to know and understand Maryland law if you are doing business in our State. For more information, please contact Chris Rahl
Changes to "Accredited Investor" Require Study Now. Section 413 of the Act has an immediate impact on companies seeking to raise capital through private placements. The private placement of securities to "accredited investors" is one of the least expensive and easiest ways for companies to meet their financing needs, because the federal securities laws impose very few disclosure or other requirements on these offerings and they are exempt from state regulation. An individual can meet the definition of “accredited investor” by satisfying either the minimum net worth requirement or the minimum annual income requirement. The Act leaves intact the $1 million net worth requirement for the next four years, but requires individuals to exclude the value of their primary residence. Because a primary residence is often one of the investor's most valuable assets, this change will likely limit the investor pool. After four years, the SEC is required to adjust this dollar threshold for inflation. Moreover, the SEC is required to review immediately the annual income requirement and determine whether it should be modified for the protection of investors. Currently, individuals will meet the annual income requirement if they had annual income of $200,000 (or $300,000 combined with a spouse) in each of the last two years and expect to make at least that much in the current year. The Act requires the SEC to review both the net worth requirement and the annual income requirement every four years and make any adjustments it deems necessary for the protection of investors. If you have any questions or concerns about how these changes could impact your current or planned private placements, please contact Andy Bulgin
REGULATIONS PROPOSED TO IMPLEMENT NOTICE OF HOUSING COUNSELING
As reported in our 2010 Maryland Laws Update, beginning on January 1, 2011, each lender making a first mortgage loan primarily for personal, family, or household purposes that will be secured by owner-occupied real property located in Maryland must provide the borrower with a new written notice about housing counseling. On July 16, the Maryland Department of Housing and Community Development issued proposed regulations to implement this notice requirement. Comments on the proposed regulations will be accepted through August 16. For more information, please contact Chris Rahl.
MARYLAND’S NEW FORECLOSURE LAW IS EFFECTIVE
We have previously reported on the new foreclosure protections, including mediation, afforded to borrowers who occupy real property as a primary residence. Making implementation easier, the Office of the Commissioner of Financial Regulation added to its website in WORD format the various new forms required by that law. We thank the Commissioner’s office for this helpful addition to its website.
COURT RECOGNIZES DISTINCTION BETWEEN FORFEITURES OF CORPORATION AND LLC CHARTERS
On May 27, 2010, the Court of Special Appeals issued its opinion in Price v. Upper Chesapeake Health Ventures, in which it opined upon the difference in effect of a proclamation of forfeiture upon corporations versus limited liability companies (LLC). A proclamation of forfeiture renders a corporation’s charter repealed, annulled and forfeited, and the powers conferred by law on the corporation are made inoperative, null and void. As a result, Maryland courts have held that the forfeiture of a corporation’s charter terminates the corporation, causes dissolution of the corporation, and causes an automatic distribution of the corporation’s assets to its directors, as trustees. In the case of LLCs, however, forfeiture merely terminates the LLC’s right to do business and the right to use its name. Thus, after a forfeiture, the LLC continues to exist as a legal entity and title to the LLC's assets remain vested in the LLC, and any subsequent transfer of an interest in the LLC's assets (such as the granting of a security interest) would need to be evidenced by an instrument signed by the LLC and not by the members of the LLC in their individual capacities. The law expressly states that a forfeiture does not affect the validity of any contract or act executed or taken by the LLC either before or after forfeiture. If you have any question about the impact of this decision upon your business please contact Andy Bulgin.
PEOPLE ARE CALLING ABOUT... POWERS OF ATTORNEY
Frequently we get calls about whether a particular form of power of attorney authorizes the named attorney-in-fact (agent) to take a certain action. While we continue to address those questions, Maryland’s new power of attorney law raises additional questions, including what actions a financial institution can and should take when a purported statutory form is presented. In addition, financial institutions need to review their deposit account agreements and policies and procedures to be sure all are consistent with Maryland’s new law. For more information, please contact Chris Rahl.