With the growth of the automotive loan market, which just this month has been the subject of examination by national publications such as the Wall Street Journal, has come a corresponding rise in auto loan delinquencies. For automotive finance companies, auto repossessions represent a risk for affirmative claims by consumers both on an individual and, more significantly, on a class basis. Recently, there has been an uptick in class actions against automotive finance companies alleging technical violations of state and federal law governing repossessions. Continue Reading Trend Analysis: Rise in Automotive Repossession Class Actions
Recent interest-rate decreases have led to a resurgence in the mortgage market, with refinance activity up sharply from levels a year ago. But lenders have underwriting on their minds for reasons other than increased application volume.
The CFPB recently affirmed that it intends to allow the so-called GSE Patch to its Ability-to-Repay/Qualified Mortgage Rule to expire in early 2021. This has home loans executives and their advisors assessing their underwriting obligations in a world without this heavily utilized compliance safe harbor. In advance of the elimination of the patch, the Bureau is requesting comments regarding potential changes to the Rule and the Qualified Mortgage definition. Continue Reading Patchless–CFPB Seeks Comment on Ability to Repay and Qualified Mortgages After Expiration of the GSE Patch
Over the years, much has been written about the Bankruptcy Code’s treatment of small businesses, and the American Bankruptcy Institute Commission’s testimony to Congress this summer made clear that the existing law fell short of providing necessary relief for small businesses. For example, of the 18,000 small business bankruptcy cases filed between 2008 and 2015, less than 27% of those cases resulted in confirmed plans of reorganization. And these numbers excluded countless small businesses that, for a variety of reasons, did not or could not seek bankruptcy relief. See Robert J. Keach, ABI Testifies on Family Farmers and Small Business Reorganizations, XXXVIII ABI Journal 8, 8-9, August 2019, available at https://www.abi.org/abi-journal/abi-testifies-on-family-farmers-and-small-business-reorganizations (subscription required). Continue Reading New Bankruptcy Laws Offer Hope for Small Businesses, Family Farmers and Service Members
Over the past several years, much has been written about how numerous bankruptcy courts have interpreted and enforced bankruptcy and insolvency-related provisions in intercreditor agreements, subordination agreements and other “agreements among lenders” when they may affect a debtor and its estate. Although the Bankruptcy Code itself provides little guidance, the emerging trend has been for bankruptcy courts to strictly enforce intercreditor agreements according to their clear and unambiguous terms, rather than allow for broader interpretations based upon the parties’ intent or other policy considerations.
Intercreditor agreements are commonplace in loan transactions that involve multiple lenders, and set forth the relative rights, priorities and obligations of senior lenders verses junior or subordinated lenders—including priority of payment—and as to their common borrower and its assets. Section 510(a) of the Bankruptcy Code provides that a subordination agreement is enforceable in a bankruptcy case to the same extent it would be under applicable nonbankruptcy law. But bankruptcy courts have not always enforced these agreements consistently; some courts have enforced them as written, while others have invalidated certain provisions. Continue Reading Importance of Careful Drafting of Intercreditor Agreements Highlighted by Recent Federal Appeals Court Ruling
Starting now, all creditors must exercise more caution when trying to collect against discharged bankruptcy debtors, because a creditor’s good faith belief that the discharge injunction did not apply is no longer a viable defense. On Monday, June 3, 2019, the U.S. Supreme Court clarified the standard for awarding sanctions against a creditor for violation of the discharge injunction, unanimously holding that a court may hold a creditor in civil contempt for violating a discharge order if there is “no fair ground of doubt” that the discharge order barred the creditor’s conduct. Taggart v. Lorenzen, 587 U.S. __ (2019).
Bradley Taggart (“Taggart”) owned an interest in an Oregon company called Sherwood Park Business Center (“Sherwood”). In 2007, Sherwood and some of the other owners filed a lawsuit against Taggart in state court, claiming that Taggart had breached Sherwood’s operating agreement. On the eve of the state court trial, Taggart filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. At the conclusion of his bankruptcy case, Taggart received an order granting him a discharge under Section 727 of the Bankruptcy Code “from all debts that arose before the date of the order for relief” (subject to certain exceptions that are not relevant here). Section 524 of the Bankruptcy Code explains that a discharge order “operates as an injunction” that bars creditors from collecting any debt that has been discharged. In Taggart’s case, any damages that would have resulted from the state court litigation were subject to the discharge. Continue Reading Creditor Beware: Supreme Court Rejects “Good Faith” Defense to Violations of Bankruptcy Discharge Orders
Article 9 of the Uniform Commercial Code (“UCC”) has become highly technical, reflecting the complexity of modern secured transactions and the intricate relationships of debtors, secured parties and others who have or may have interests in a debtor’s assets. Some of its rules, however, seem relatively easy to understand and apply.
One of those is the rule that protects buyers who buy goods in the ordinary course of business, allowing such buyers to make purchases free and clear of security interests created by their sellers. UCC 9-320. This relatively simple concept is consistent with everyday buyers’ expectations. When one purchases at a store and pays for goods, one expects the secured party to follow the sales proceeds rather than unfairly repossess the purchased goods. Continue Reading The Extraordinary Rights of Non-Ordinary Course Buyers
Executors have a duty to gather all of the assets of the decedent’s estate and prepare an inventory of the assets and debts. In days of old, this meant obtaining paper files that had been in the possession of the deceased. The digital world changed all that. Digital content is generally held, not by the owner of the information, but by a third-party custodian. The custodian of digital assets has an obligation to protect against disclosure of data to unauthorized users. Can an executor really be considered an unauthorized user?
A prior version of a model act, the Uniform Fiduciary Access to Digital Assets Act, gave the fiduciary the same rights over digital assets that she had over tangible assets. That act was met with resistance by custodians of electronic records, each with its own terms-of-service agreements in place with their customers which included provisions regarding who could access digital assets. And custodians were concerned about the costs of responding to multiple requests for digital assets. Continue Reading Accessing and Protecting Digital Assets: Fiduciary Duties in a Digital World
Justice Kavanaugh’s first authored opinion as a Supreme Court Justice in Henry Schein, Inc. v. Archer and White Sales, Inc., No. 17-1272, 586 U.S. ____ (2019) further cements the Supreme Court’s stance on arbitration.
Over the years, the Supreme Court has consistently held in favor of arbitration and rejected attempts by parties and the lower courts to ignore binding arbitration clauses. For instance, in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (April 2011), the Supreme Court rejected state laws that attempted to prohibit arbitration for certain types of claims, holding “[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the [Federal Arbitration Act (“FAA”) 9 U.S.C. § 1 et seq.].” More recently, in Epic System Corp. v. Lewis, 138 S. Ct. 1612 (May 2018), the Supreme Court held that arbitration clauses prohibiting class actions in employment contracts were enforceable and were not preempted by the National Labor Relations Act (“NLRA”), 29 U.S.C. § 151 et seq.—which guarantees basic rights of private sector employees to take collective action. The Supreme Court reasoned that the FAA and NLRA “have long enjoyed separate spheres of influence . . .” and the FAA is “a Congressional command requiring us to enforce, not override, the terms of the arbitration agreements….” Continue Reading The Supreme Court Remains Steadfast in Favor of Arbitration
Long before eMortgages, electronic signatures, and mobile apps hit the secured lending scene, Lord Nottingham proposed that the English Parliament pass An Act for Prevention of Frauds and Perjuries in 1677 to prevent nonexistent agreements from being “proved” through false testimony. That statute and its progeny remain an important resource in today’s financial services industry. All states have adopted a version of the statute of frauds and many states have enacted statutes of frauds specifically designed to provide broad protection for financial institutions. If used effectively, these “super” statutes of frauds can quickly dispose of claims and defenses related to credit agreements, allowing lenders to recover collateral, enforce notes and guarantees, and reduce the expense of litigation. These statutes should be one of the first tools lenders reach for when defending claims for breach of an unsigned credit agreement or prosecuting loan enforcement actions where claims and defenses related to credit agreements are asserted.
One of the key provisions of the Dodd-Frank Act rollback law signed by President Trump on May 24, 2018, hasn’t met its early promise for U.S. community banks. Recently proposed rules to implement simplified capital requirements have fallen short of the industry’s expectations when the bank deregulation law was enacted in May.
On November 21, 2018, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency jointly announced a proposed rule to simplify capital requirements for qualifying community banking organizations that opt into the community bank leverage ratio framework. The agencies are seeking public comment on a proposal that would simplify regulatory capital requirements for qualifying community banking organizations, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155 regulatory reform bill). Continue Reading Community Banks Disappointed with Federal Regulators’ Proposed Community Bank Leverage Ratio