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Monthly Archives: November 2009

November 2009 Client Alerts

By Stan Santos - Monday, November 30, 2009

The FTC Postpones the Deadline for Red Flags Rule Compliance Again to June 1, 2010

In a last minute announcement, the Federal Trade Commission has indicated that it will delay the compliance date for the “Red Flags Rule” yet again. Affected businesses now have until June 1, 2010 to develop and implement a plan as required under the Red Flags Rule.

For more information, please read the client alert published by Bryan Cave LLP’s Consumer Protection Client Service Group on November 2, 2009.

EEOC Releases New Workplace Poster

The Equal Employment Opportunity Commission announced last week that it has revised and released for posting the notice that employers covered by federal anti-discrimination laws must display in the workplace.

For more information, please read the client alert published by Bryan Cave LLP’s Labor and Employment Client Service Group on November 2, 2009.

House Unveils Health Reform Bill

The U.S. House of Representatives has unveiled its health reform legislation. Among its provisions include an excise tax on medical devices that is expected to cost the industry $20 billion over the next ten years. The bill also requires device manufacturers to submit the product information to a national registry.

For more information, please read the client alert published by Bryan Cave LLP’s Food and Drug Administration Practice on November 3, 2009.

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Updated Guidance on Seeking a “High-Rate Area” Determination

By Rob Klingler - Tuesday, November 17, 2009

The FDIC has not yet formally published the anticipated guidance on how an institution can seek a “high-rate area” determination under the national interest rate restrictions for less than well-capitalized banks.  However, based on conversations with FDIC officials, we understand that the FDIC is accepting requests that a bank be determined to be in a “high-rate area.”

We understand that the request should include a self-identification of the bank’s relevant market area.  The FDIC will not set specified market areas, but rather will consider the market rate identified by the institution.  Institutions are also encouraged to identify competing credit unions  if the bank believes the credit union is relevant to deposit pricing in the market.

The request does not have to include analysis of the rates being paid in the market, as the FDIC will use its own data to calculate the average rate paid in the Bank’s identified market area.  The FDIC will calculate the average rates paid in four standard types of deposit categories.  If the market rate exceeds the national rate by at least 10% in three of the four categories, the FDIC will designate the Bank’s market area as a “high-rate area.”

We expect official guidance from the FDIC to be released shortly.

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Updated Guidance on Prepaid Assessment Exemptions

By Rob Klingler - Tuesday, November 17, 2009

Standards for Prepaid Assessment Exemptions

We understand that the FDIC has decided to exempt the following categories of financial institutions from the requirement to prepay three years of deposit assessments:

  • Institutions with a CAMELS rating of 4 or 5; and
  • Institutions that are less than well-capitalized.

Institutions falling in either of these categories should have already received an electronic letter from the FDIC confirming that they have been exempted from the prepayment of deposit assessments.

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FDIC Finalizes Prepaid Assessments Rule

By Rob Klingler - Monday, November 16, 2009

On November 12, 2009, the FDIC adopted its final rule regarding prepaid assessments.  The final rule is largely unchanged from the FDIC’s initial proposal; the most significant change is that the FDIC will now refund any unused assessments after collection of the amount due on June 30, 2013, as opposed to December 30, 2014.

Effect

As noted by the FDIC, the prepayment of FDIC assessments primarily impacts liquidity – both of the FDIC Deposit Insurance Fund and the banks.  As the prepaid assessments merely represent the prepayment of future expense, they do not affect a Bank’s capital (the prepaid asset will have a risk-weighting of 0%) or tax obligations.

Given the higher FDIC assessments generally, and the elevated assessment rates for troubled banks, the prepayment of FDIC assessments could represent a significant cash outlay.  The FDIC’s online assessment rate calculator includes a prepayment tab to help banks estimate their payments

Exemptions

The final rule provides that the FDIC, after consultation with the institution’s primary federal regulator, may exempt any institution from the prepayment requirement if it determines, in its sole discretion, that the prepayment “would adversely affect the safety and soundness of the institution.”  The FDIC is required to provide notice to such institutions by Monday, November 23, 2009 if it has exempted the institution.  We are aware that the FDIC started mailing exemption letters on November 12th.

The FDIC has not indicated the standards it will apply for exemptions.  Based on the exemptions we’ve seen so far, it appears that all institutions subject to a formal enforcement action may be exempted.

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News Roundup — November 5, 2009 to November 13, 2009

By Stan Santos - Friday, November 13, 2009

Payments

PayPal officialy launched its new platform entitled “PayPal X” for third party developers on November 5, 2009, making it easier to integrate the payment system with other Web sites and applications.

Continuing fallout from the data security breach suffered by Heartland Payment Systems in January 2009 has indirectly resulted in confirmation by VeriFone that it will terminate technical support relationships with HPS and will instead offer free services to mutual merchant customers.

Expedited CARD Act of 2009

On November 4, 2009, the House of Representatives overwhelmingly approved legislation sponsored by Carolyn Maloney and Barney Frank that would push up the effective date of the Credit CARD Act to immediately upon signing of the bill. The bill passed by a vote of 331-92. The Senate version of the bill, S.1833 (and a companion piece, S.1927) is currently in committee.

Data Security

Consumers who have received data breach notifications within 2008-2009 are at a much greater risk of fraud than typical consumers, according to a new study published by Javelin Research.

TVNZ, a news site in New Zealand, takes a look at the impending phase-out of credit card transactions that utilize signatures, soon to be replaced by chip and PIN-based technology.

A sweeping new bill that would implement a national standard for data protection and breach notification, S. 1490, the Personal Data Privacy and Security Act of 2009, was approved by a vote of 15-5 in the Senate Judiciary Committee. Sponsored by Pat Leahy (D-VT.), the bill would require companies and government agencies to follow a specific ruleset for protecting sensitive and personally identifable data. The bill would also introduce a federal breach-notification standard under which companies would be required to notify not just individuals affected by the breach, but also, in some cases, credit reporting agencies and the U.S. Secret Service. It would also establish a new Office of Federal Identity Protection (within the FTC) and increase penalties for identity theft and related fraud.

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October TARP Capital Infusions – TARP Map and List of Recipients Updated

By Dustin Hall - Saturday, November 7, 2009

During the month of October, the Treasury completed rounds forty-six, forty-seven, and forty-eight of TARP Capital infusions.  In these three rounds, which closed on October 2,  October 23, and October 30, respectively, the Treasury purchased a total of approximately $58 million in securities from 6 financial institutions (1 of which previously received a TARP capital infusion).  Through October 2009, the Treasury had invested in 692 institutions, totaling approximately $204.7 billion.

In these three rounds, Premier Financial Bancorp, Huntington, West Virginia, received the largest infusion, $22 million, and Providence Bank, Rocky Mount, North Carolina, received the smallest infusion, $4 million.

Of note during the month of October, WashingtonFirst Bankshares, Inc. became the first insitution to receive a second investment from Treasury in connection with the TARP expansion for community banks.  WashingtonFirst received $6.8 million on October 30, 2009 and had already received $6.6 million on January 1, 2009.

During October, three financial institutions re-paid their TARP capital investments: Flushing Financial Corp. ($70 million), Commerce National Bank ($5 million), and LCNB Corp. ($13.4 million).  As of the end of October, 2009, 45 financial institutions had re-paid all, or some portion, of their TARP Capital investment, bringing the total amount re-paid to approximately $70.8 billion.  At the end of October 2009,  Treasury’s outstanding investment equaled approximately $133.9 billion.

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FDIC Issues New Guidance Relating to the Brokered Deposit/Interest Rate Restrictions

By Michael Shumaker - Wednesday, November 4, 2009

As we have discussed earlier, the FDIC has revised the brokered deposit/interest rate restrictions to create a presumption in favor of a “national deposit rate” starting January 1, 2010. Under this new rule, financial institutions that are less than well capitalized will be barred from paying in excess of 75 basis points above the national rate unless the institution is able to persuade the FDIC that the institution’s local market rate is above the national rate. As noted earlier, we anticipate that the presumption in favor of the national rate will be difficult to overcome.

On November 3, 2009, the FDIC issued Financial Institution Letter 62-2009 and Frequently Asked Questions that provide new guidance for financial institutions that would prefer to use a prevailing rate for their local market area instead of the new national rate. As described in its publication, the FDIC envisions a two-step process for financial institutions seeking to use a local rate basis. A financial institution that believes it is operating in a market area with deposit rates that are, on average, higher than the national rates must first request and receive a determination from the FDIC that it is operating in a high-rate area; the FDIC anticipates providing additional guidance explaining how banks can seek this threshold determination later this year. However, regardless of whether a financial institution receives such a determination from the FDIC, the new national rates will apply to all deposits outside the market area.

Should the FDIC provide a “high-rate area” determination to the financial institution, the bank or thrift must then calculate the effective rates for its local market. As today’s guidance makes clear, the prevailing rate in the applicable market area is the average of rates offered by other FDIC-insured depository institutions and branches in the geographic market area in which the deposits are being solicited. This prevailing rate includes not only other competing financial institutions, but also individual branches; in other words, a financial institution must determine the effective yield paid by each branch in its market area in order to correctly calculate the prevailing rate for its local market. This average must exclude the rate offered by the subject financial institution. The FDIC noted in its guidance that when an institution is calculating its prevailing market rate, before or after January 1, 2010, it must calculate this rate using the rates of all branches within its local market area. The FAQ provide several sample calculations.

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Red Flags Rule Compliance is Delayed to June 10, 2010 in a Last Minute Decision

By Roy Hadley and Toby Butler - Monday, November 2, 2009

The FTC announced over the weekend that, at the request of members of Congress, the compliance date for the Red Flags Rule is now delayed to June 1, 2010. This gives companies additional time to prepare their required Red Flags Rule Plans. The FTC has said it will continue to provide guidance on the development and implementation of these Plans, especially for companies who want to voluntarily adopt identity theft protection measures for the benefit of their customers and business reputation (Click here for the FTC’s Red Flags Rule website). This delay does not affect any other agency oversight or other federal regulations relating to data security and identity theft.

On a related note, a federal court (District of Columbia) issued the first ruling regarding the application of the Red Flags Rule on October 30, 2009. That decision held that the FTC may not apply the Red Flags Rule to attorneys. This case (and any appeals) are independent of the June 1, 2010 delay, but companies should keep an ear out for other decisions that may directly affect their industry.

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Policy Statement on Prudent Commercial Real Estate Loan Workouts

By Jerry Blanchard - Sunday, November 1, 2009

Regulators and financial institutions have been trying for some time now to come to an understanding of what type of how workout strategies affect the classification of loans and the corresponding impact on estimates of loan losses. On October 30 the federal banking regulators published guidance on prudent commercial real estate loan workouts that addresses these issues. The guidance addresses some of the most contentious areas of disagreement between banks and examiners.  One of those areas is the impact of a decline in value of collateral in situations where the borrower or guarantors have the ability to service the loan. The new guidance tells examiners that renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance. This is a significant change from the manner in which examiners have been classifying acquisition and development loans in the past and time will tell exactly how the examiners will in fact deal with such loans in the future.

A problem loan workout can take many forms, including a renewal or extension of loan terms, extension of additional credit, or a restructuring with or without concessions.  The key to any loan workout is that the renewal or restructuring should improve the lender’s prospects for repayment of principal and interest and be consistent with sound banking, supervisory, and accounting practices.

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