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The Same Old Wrongdoer Blues: Creative Fraud Leaves Employer Holding the Bag for Fraud on its Account

July 26, 2017

Authors

Jerry Blanchard

The Same Old Wrongdoer Blues: Creative Fraud Leaves Employer Holding the Bag for Fraud on its Account

July 26, 2017

by: Jerry Blanchard

Articles 3 and 4 of the UCC provide a roadmap for addressing how to allocate liability for the various mistakes, embezzlements and forgeries that have followed the payments system since its invention several centuries ago.  While as a general rule a customer is not liable for forgeries and other fraud on its account there are several exceptions where the risk of loss can be shifted back to the customer. One of those situations is what practitioners refer to as the “same wrongdoer rule” found in section 4-406(d)(2). The rule says that when the bank sends a customer their statement, the customer has a certain time period, usually 30 days, to review the statement and notify the bank of any unauthorized signatures or alterations. Should the customer fail to flag such transactions then the UCC shifts the risk of loss for all subsequent

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No Fiduciary Duty Between Lead and Participants

July 10, 2017

Authors

Jerry Blanchard

No Fiduciary Duty Between Lead and Participants

July 10, 2017

by: Jerry Blanchard

A recent decision out of federal court arising out of litigation involving a Ponzi scheme has reinforced the principle that the lead in a loan participation does not owe a fiduciary duty to participants.  The case of Finn v. Moyes (Finn v. Moyes,  2017 WL 1194192 (D Minn 2017)) arose from a Ponzi scheme whereby First United Funding, LLC (“First United”) defrauded numerous banks of over $90 million.  A receiver was appointed to recover funds and sued a number of parties for, among other things, aiding and abetting the fraud carried on by First United.

The receiver claimed that one group of defendants (the “Moyes”) had actual knowledge of the fraudulent conduct and aided and abetted First United by fraudulently over-pledging collateral. The Receiver also alleged that the most of the other loans made

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The HVCRE Easter Egg for Community Banks

July 5, 2017

Authors

Jerry Blanchard

The HVCRE Easter Egg for Community Banks

July 5, 2017

by: Jerry Blanchard

We have written several times about the rules concerning the appropriate risk weighting for High Volatility Commercial Real Estate (“HVCRE”) loans. The interagency FAQ published on April 6, 2015 provided some guidance but many banks continue to have questions about fact situations that are not addressed under the regulation.  Despite indications that an interagency task force was looking at a further set of FAQ nothing has yet come out. Despite that, there are actually grounds for optimism that the rules will yet be simplified.

Section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)  requires that, not less than once every 10 years, the Federal Financial Institutions Examination Council (FFIEC) and the Board of Governors of the Federal Reserve System (Board), the Office of the

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If the Shoe Fits, Wear It – Bank Third Party Vendors as Institution-Affiliated Parties

May 26, 2017

Authors

Jerry Blanchard

If the Shoe Fits, Wear It – Bank Third Party Vendors as Institution-Affiliated Parties

May 26, 2017

by: Jerry Blanchard

When negotiating bank third party vendor contracts it is not unusual to ask the vendor to acknowledge in the contract that bank regulators might exercise some sort of supervision over the vendor. Vendors will oftentimes push back on that point, claiming that since they are not a bank the FDIC has no jurisdiction over their affairs. We typically respond that “if the shoe fits, wear it.”

The fit arises because of the definition of “institution-affiliated party” (“IAP”). The definition was added under FIRREA when the regulatory agencies were seeking additional authority to impose sanctions against lawyers, accountants and appraisers whose negligence may have contributed to the failure of a bank. The language added to the statute is broader than just those professionals and covers any shareholder, consultant joint venture party, any other

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Before You Comment on My Haircut, Think Again

May 10, 2017

Authors

Jerry Blanchard

Before You Comment on My Haircut, Think Again

May 10, 2017

by: Jerry Blanchard

Back in 2008 and 2009 Eddie Liles lent around $102,000 to his brother Dallas to purchase rental properties at 554 South Shore Drive and 540 South Shore Drive in Greenup County, Kentucky, as well as a 2008 Ford 4×4 truck.  The brothers signed a Loan Agreement that provided the loan would be interest free and that the loan for 554 South Shore Drive to be repaid first, followed by the loan for the truck, and finally the loan for the 540 South Shore Drive. The Loan Agreement called for Dallas to make payments of “ [a] minimum of $600.00 per year,” which it specified could be “multi-payments or one payment of $600.00.” It was also clear that Dallas could pay more than $600 per year towards the indebtedness, if he so desired.

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Do you get Bragging Rights if the Malware Infecting your Computer was Named after Zeus?

April 17, 2017

Authors

Jerry Blanchard and David Zetoony

Do you get Bragging Rights if the Malware Infecting your Computer was Named after Zeus?

April 17, 2017

by: Jerry Blanchard and David Zetoony

Over the last decade as the specter of cyber attacks has increased dramatically, financial institutions have been encouraged to look into the use of cyber fraud insurance as one means of minimizing risk. A recent decision by the 8th Circuit provides an interesting opportunity to see how such policies are going to be interpreted by the courts.

In 2011, an employee at Bellingham State Bank in Minnesota initiated a wire transfer through the Federal Reserve’s FedLine Advantage Plus system (FedLine). Wire transfers were made through a desktop computer connected to a Virtual Private Network device provided by the Federal Reserve. In order to complete a wire transfer via FedLine, two Bellingham employees had to enter their individual user names, insert individual physical tokens into the computer, and type in individual passwords and

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Reviewing Third Party Vendor Service Contracts

November 14, 2016

Authors

Jerry Blanchard

Reviewing Third Party Vendor Service Contracts

November 14, 2016

by: Jerry Blanchard

OLYMPUS DIGITAL CAMERAManaging third party vendor relationships has always been an important function in banks. More recently it has become a hot topic for state and federal financial bank regulators.

As a result, we have compiled our Seven Part Guide on reviewing third party vendor service contracts into one article.  A checklist for reviewing third party vendor contracts is included in the article, and also available separately.

The analysis covers typical elements that should be found in any third party vendor contract, including provisions on the nature of services to be provided, the location where the word is to be performed, breach and termination, as well as provisions related to the potential outbreak of zombies.

Reviewing Third Party Vendor Service Contracts

Checklist for Vendor Service Contracts

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Reduce Potential ADA Liability by Making ATMs and Websites Accessible

October 25, 2016

Authors

Merrit Jones and Marcy Bergman

Reduce Potential ADA Liability by Making ATMs and Websites Accessible

October 25, 2016

by: Merrit Jones and Marcy Bergman

Banks and credit unions are among the most recent targets of a wave of demand letters and lawsuits alleging violation of the Americans With Disabilities Act of 1990 (the “ADA”). The most common allegations concern inaccessible ATMs and websites, despite the fact that the ADA and its implementing regulations do not yet address website accessibility.

Title III of the ADA prohibits discrimination against individuals “on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation,” 42 U.S.C. § 12182(a), which includes banks and credit unions.

In 2010, the federal regulations implementing the ADA were revised, and expressly addressed ATMs for the first time. Banks and credit unions were given until March 2012 to become fully compliant, and most litigation targeted institutions that failed to comply by that date.

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Pointers for Bank Recipients of Demand Letters Asserting ADA Non-Compliance

October 18, 2016

Authors

Jerry Blanchard and Dan Wheeler

Pointers for Bank Recipients of Demand Letters Asserting ADA Non-Compliance

October 18, 2016

by: Jerry Blanchard and Dan Wheeler

Community banks have recently been on the receiving end of demand letters from plaintiffs law firms alleging that the banks’ websites are in violation of the Americans With Disabilities Act of 1990 (the “ADA”).  Interestingly, there are currently no specific federal standards for websites under the ADA. The Department of Justice (“DOJ”) is in the process of developing regulations for website accessibility, but has announced it will not finalize these regulations until 2018 at the earliest. Even so, the DOJ has emphasized that businesses should make websites accessible to the disabled. While the regulations are being developed, many businesses have been applying the Web Content Accessibility Guidelines (WCAG) 2.0 Level AA with the understanding that the DOJ has made clear that it considers a website accessible if it complies with these guidelines.

When a bank receives a demand letter the first thing they need to do is hire counsel to advise them

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Part 7 of Reviewing Third Party Vendor Service Contracts, a Seven Part Guide

October 12, 2016

Authors

Jerry Blanchard

Part 7 of Reviewing Third Party Vendor Service Contracts, a Seven Part Guide

October 12, 2016

by: Jerry Blanchard

This is part 7 of a Seven Part Guide to reviewing vendor contracts. Part 1 can be found here, and other parts can be found here.

Indemnification. Indemnification provisions in a third party services contract can be hotly contested. There is no question that banks should include indemnification clauses that specify the extent to which the bank will be protected from claims arising out of the failure of the vendor to perform, including failure of the vendor to obtain any necessary intellectual property licenses. Not surprisingly, they can be one of the most difficult provisions to reach an agreement on.

In its simplest terms, indemnification constitutes an agreement to allocate certain risks of loss among the parties. It is analogous to a guaranty but just like a guaranty, the fact that you have one does not insure a party that they will in fact be protected from loss.

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