Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
In June, the OCC posted an interpretive letter to establish that a national bank, subject to certain limits established by 12 U.S.C. § 92a and 12 C.F.R. part 9, may exercise fiduciary powers in any state without obtaining a state money transmitter license. Interpretive Letter #1167 responds to a request for clarification as to whether a bank, whose fiduciary powers are derived from and governed by the National Bank Act and OCC regulations, is required to obtain a state money transmitter license or exemption in order to exercise its fiduciary capacity. The OCC determined that under 12 U.S.C. § 92a, national banks are authorized to act in specific fiduciary capacities “and any other fiduciary capacity permitted for state institutions when acting in the capacity is not in contravention of state law.” The OCC noted that while a national bank’s fiduciary capacities are determined by reference to state law, 12 U.S.C. § 92a (i) “imposes no geographic limits on where a national bank with fiduciary powers may act in a fiduciary capacity”; and (ii) “does not limit where a national bank may market its fiduciary activities, where its fiduciary customers may be located, or where the property being administered may be located.” As such, a national bank may conduct federally authorized fiduciary activities in any state, even if aspects of the bank’s activities fall within a state’s definition of money transmission and the bank is not licensed as a money transmitter in that state. According to the OCC, state laws that are intended to impose licensing requirements on a national bank’s exercise of fiduciary powers are preempted and satisfaction of an exemption from those requirements is not required. However, the OCC cautioned that “[d]ifferent facts and circumstances or consideration of different laws and regulations could result in a different conclusion.”
On June 25, the Nevada governor issued Emergency Directive 025 to assist landlords and tenants in Nevada that have been directly or indirectly impacted by the economic environment caused by Covid-19. The directive, among other things: (i) strongly encourages the use of form Lease Addendum/Promissory Note for Rental Arrearages Due to COVID-19, to cure rental payment defaults of the original lease agreement, whether written or oral; (ii) strongly encourages landlords and tenants to enter into a voluntary repayment agreement for defaults in rental payments related to COVID-19; (iii) orders landlords to cease any eviction proceeds in a repayment agreement is entered into; (iv) authorizes limited residential summary eviction actions as outlined in the directive; (v) clarifies that the prohibition on charging late payment fees or penalties for nonpayment under the terms of a lease or rental agreement will terminate on August 31, 2020, but cannot be applied retroactively to late rental payments due between March 30 and August 31; and (vi) authorizes unlawful detainer actions for other than commercial tenancies as set forth in the directive. The Executive Department also issued General FAQs, Residential Landlord FAQs, Residential Tenant FAQs, and Commercial FAQs for the Directive.
On June 24, the Michigan governor announced Executive Order 2020-131, which extends a previous order that temporarily allowed e-signatures on official documents and remote notarizations (previously discussed here). Any notarial act may be performed by a notary that holds a valid notarial commission in Michigan using two-way real-time audiovisual technology if certain conditions are met. The order sets forth additional requirements for remote notarizations and continues through July 31, 2020 at 11:59 p.m.
New Jersey Supreme Court holds that state fiduciary law does not permit affirmative cause of action against bank
On June 17, the New Jersey Supreme Court reversed an appellate division’s judgment and dismissed a complaint against a bank after concluding that the New Jersey Uniform Fiduciaries Law (UFL) does not permit an affirmative cause of action against banks but rather provides them with limited immunity for failing to take notice of and action on the breach of a fiduciary’s obligation. In 2015, the plaintiff filed a complaint on behalf of himself and his dental practice against two of his employees who allegedly took insurance company checks issued to the plaintiff and his practice totaling “several hundred thousand dollars,” forged his endorsement on them, and deposited the checks into personal accounts held by a bank who was sued in the same lawsuit for common law claims of conversion and negligence. The trial court dismissed the cause of action against the bank for failure to state a claim, reasoning that “‘common law negligence is not such a remedy’ in the absence of a ‘special relationship’ between [the plaintiff] and the bank.” The trial court also rejected the plaintiff’s argument that the UFL provided the basis for a cause of action, concluding that the individuals acted as “errant employees”—not as fiduciaries—and that the bank had no fiduciary relationship with the plaintiff who was not a bank customer. The appellate division partially reversed, concluding that plaintiff should be allowed to plead a UFL claim. Among other things, the plaintiff argued that the employees were acting in a fiduciary capacity as “constructive trustees” of the funds and the bank met a bad faith requirement under the UFL in depositing the checks.
The New Jersey Supreme Court disagreed, holding that “[n]othing in the plain language of the UFL suggests that the UFL is itself the basis for an affirmative cause of action.” Moreover, the “UFL does not provide for a recovery through a private action or set forth remedies or a statute of limitations—all indicia of a statutory cause of action.” According to the New Jersey Supreme Court, “[w]hen an action is brought against a bank, the UFL provides that a bank’s liability depends on whether the bank acted with actual knowledge or bad faith in the face of a fiduciary’s breach of his obligations.”
On June 24, the Director of Regulatory Policy & Policy Counsel at CSBS, Mike Townsley, wrote a blog post in response to the OCC’s Bulletin on Covid-19 preemption, arguing that the bulletin does not have the force and effect of law. As previously covered by InfoBytes, on June 17, the OCC issued a Bulletin stating that banks are governed primarily by federal standards and generally are not subject to state law limitations. The OCC acknowledged states’ efforts to respond to the economic disruptions as “well-intended,” but noted that the competing requirements could risk banks’ safety and soundness. The Bulletin also provided specific examples of the types of state laws that do not apply to banks’ lending and deposit activities.
In response, Townsley asserts that the Bulletin has no preemptive effect, because the OCC did not follow the “process required by the National Bank Act (NBA) to determine that these state COVID-19 relief measures are preempted.” Specifically, Townsley argues that through the enactment of the Dodd-Frank Act, Congress “amended the NBA to overturn the OCC’s preemption regulations and establish substantive procedural requirements for the determination of whether the NBA preempts a state law.” The requirements include a court or the OCC having to conclude that the law “‘prevents or significantly interferes with the exercise by the national bank of its powers,’” which determination, according to Townsley, if made by the OCC, must be on a case-by-case basis, and include a notice and comment period and the backing of “‘substantial evidence’ on the record.” Townsley also seeks to cast further doubt as to whether the preemption regulations cited by the Bulletin can serve as a guide on procedural grounds, observing that Dodd-Frank requires the OCC to review and decide, through notice and comment, whether to “continue or rescind” each preemption determination every five years, and it has been “well over five years” since the rules were adopted and no such review has ever been conducted. Townsley concludes by citing to the 19th century Supreme Court decision Nat'l Bank v. Commonwealth, stating that national banks “’are subject to the laws of the State.’”
On June 23, the Illinois Department of Financial and Professional Regulation announced that recordings of webinars offered to lenders and businesses on June 18 concerning the federal Paycheck Protection Program Loan Forgiveness Application are available online.
Washington Department of Financial Institutions extends guidance on remote work for mortgage loan originators
On June 22, the Washington Department of Financial Institutions issued interim regulatory guidance to licensed mortgage loan originators and companies that sponsor them relating to temporary remote work. The guidance extends earlier interim guidance permitting mortgage loan originators to work from home, previously covered here, until December 31, 2020.
On June 22, Idaho Governor Brad Little issued Executive Order 2020-13 creating a rebuttable presumption that any regulation that has been waived in response to the Covid-19 pandemic is unnecessary or counterproductive outside of the emergency. The responsible agencies are instructed to determine by July 24 whether permanent suspension of the regulation would be deleterious to the public health and safety. If so, the agency head should submit a signed letter supporting that conclusion; otherwise they should take necessary steps to finalize the regulation’s permanent suspension.
On June 19, the Maryland Department of Labor’s Office of the Commissioner of Financial Regulation issued the Covid-19 Health Crisis: Financial Relief Guide for Marylanders. Among other things, the guide contains information and resources regarding relief programs for consumers relating to economic impact payments, mortgage payments and foreclosure, rental evictions, student loans, automobile and personal loans, collections and garnishment, credit reporting, and insurance coverage and payments.
Washington Department of Financial Institutions amends guidance for state regulated and exempt residential mortgage loan servicers
On June 19, the Washington Department of Financial Institutions issued amended guidance that replaces guidance issued in March to Washington State regulated and exempt residential mortgage loan servicers regarding support for consumers impacted by Covid-19. The amended guidance urges mortgage servicers to continue to assist consumers adversely impacted by Covid-19. The department further urges services to take “reasonable and prudent actions through September 30, 2020, subject to the requirements of any related guarantees or insurance policies” to support mortgagors by: (1) forbearing mortgage payments; (2) refraining from certain credit reporting; (3) offering additional time to complete trial loan modifications; (4) ensuring that late payments do not adversely affect a consumer’s ability to obtain permanent loan modifications; (5) waiving certain fees; (6) postponing foreclosures; (7) ensuring mortgagors do not experience service disruptions as a result of office closures; and (8) proactively reaching out to mortgagors to explain the assistance being offered.
- Daniel R. Alonso to discuss "When can trial lawyers take their case to the public? The Harvey Weinstein case and beyond" at a New York City Bar Association webcast
- Jonice Gray Tucker to discuss "Fair servicing in wake of Covid-19" at an American Bar Association webinar
- APPROVED Webcast: Maximizing vendor value
- Daniel P. Stipano to discuss "Cram for the exam: Best prep strategies for a regulatory examination" at an ACAMS webinar
- Melissa Klimkiewicz to discuss "Flood insurance basics" at the NAFCU Virtual Regulatory Compliance School
- Sasha Leonhardt to discuss "Privacy laws clarified" at the National Settlement Services Summit (NS3)