OCC Announces It Will Begin Accepting Fintech Charter Applications

On July 31, 2018, the Office of the Comptroller of the Currency (OCC) announced that it will begin accepting applications for special purpose national bank charters from financial technology companies. This “fintech charter” is limited to institutions that do not accept deposits.

The fintech charter was initially unveiled on December 2, 2016, by prior Comptroller of the Currency Thomas Curry. The concept was that fintech firms not linked to national banks were forced to comply with a wide variety of state-level regulations, leading to complex compliance concerns. The fintech charter would apply at the national level and was a step toward creating uniform federal regulatory standards for fintech companies to operate nationally.

Continue Reading

Third Circuit Upholds Foreclosure Sale Against Preference Attack

On July 19, the Third Circuit Court of Appeals entered a decision upholding the results of a foreclosure sale against a debtor’s allegation that the sale was a preference because the bankruptcy estate could have sold the property for a higher price. Veltre v. Fifth Third Bank (In re Veltre), Case No. 17-2889 (3d Cir. July 19, 2018).

Veltre’s home was encumbered by two mortgages prior to her bankruptcy; a senior mortgage in favor of Capital One Bank and a second mortgage held by another bank. Veltre defaulted on her loan, at which point the first lienholder foreclosed and the property went to sheriff’s sale. At the sale, the second lienholder purchased the home at auction for $90,000, which paid off the first mortgage in full.

Continue Reading

Unique challenges for commercial landlords posed by large-scale retailer bankruptcies

(Excerpted from “Retail Bankruptcies – Protections for Landlords,” Practical Law Journal, May 2018, by Lars Fuller)

Due to increasing competition from online sellers, recent years have seen a dramatic uptick in Chapter 11 bankruptcy filings by multistate brick-and-mortar retailers – some that have dozens, or even hundreds, of storefronts. These bankruptcies create challenges for the commercial landlords that own the shopping centers, malls and other establishments that those retailers rented.

A major issue in most retail bankruptcies is which of the retailer’s stores will close and which stores, if any, will be retained or sold to another tenant through an asset sale. Debtor-tenants are usually burdened by unsustainable rent obligations that can weigh down a Chapter 11 case, increasing operational deficits that threaten administrative insolvency and create urgent demands for payment from commercial landlords.

Continue Reading

Ground Leases: Some Basics, Some Specifics and How to Make Them Financeable

Ground leases are fairly common but sometimes overlooked property interests. A succinct but adequate definition of a ground lease was articulated by Herbert Thorndike Tiffany (Tiffany on Real Property § 85.50 [3d ed.]) as follows:

[A]n arrangement in which the fee owner of real property leases to a leasehold tenant many or all of the rights of the beneficial ownership of such real property held by the fee owner. Typically, in a Ground Lease, the leasehold tenant will, for the term of the lease, maintain almost autonomous control over the real property leased, including the right to construct improvements, assign, sublease, and obtain leasehold mortgage financing.

Landlords often use ground leases to (i) retain ownership of the real property for heirs/estate planning purposes, (ii) avoid realizing capital gains if holding with low basis, (iii) create an income stream or (iv) create a financing tool for improvements. Tenants might find a ground lease attractive to (i) create a financing tool for a project and improvements, (ii) reduce financial barriers to entry in the project or (iii) obtain tax deductions for the payment of rent.

Continue Reading

Supreme Court Holds That a Statement About a Single Asset Can Be a Statement Respecting a Debtor’s Financial Condition

The Supreme Court held that a statement about a single asset can be a “statement respecting the debtor’s financial condition” for purposes of determining the application of the exception to discharge set forth in Section 523(a)(2) of the Bankruptcy Code. Lamar, Archer & Cofrin LLP v. Appling, 2018 WL 2465174 (June 4, 2018).

Appling involved a client who failed to pay his attorney. Mr. Scott Appling hired a law firm – Lamar, Archer & Cofrin LLP (Lamar) – to represent him in business litigation. After Appling fell behind on his legal bills (more than $60,000), Lamar threatened to withdraw as counsel. Appling told Lamar that he was expecting a $100,000 tax refund and would use such refund to pay Lamar. In reliance upon this representation, Lamar continued to provide legal services to Appling.

Continue Reading

Supreme Court Resolves Circuit Split Over Application of Section 546(e) to Transactions Involving Conduits

The Supreme Court’s recent decision in Merit Management Group, LP v. FTI Consulting, Inc., 138 S.Ct. 883 (2018), held that transfers made by or to entities that are not “financial institutions” or other covered entities fall outside the scope of 11 U.S.C. § 546(e)’s “safe harbor” from a trustee’s avoidance powers under the Bankruptcy Code, even if those transfers are made through financial institutions or other covered entities. In a unanimous decision, the Supreme Court jettisoned the majority view adopted by the Second, Third, Sixth, Eighth and Tenth Circuits, all of which applied the “safe harbor” to transactions made through covered entities.

Merit Management involved fraudulent transfer claims brought by FTI Consulting, as trustee of a bankruptcy litigation trust, against Merit Management Group, LP to recover approximately $16.5 million paid to Merit in connection with a cash-for-stock agreement involving the sale of Bedford Downs Management Corp. to Valley View Downs, LP.

Continue Reading

Congress Passes Repeal of CFPB Guidance on Indirect Auto Lender Liability for Discriminatory Lending

The U.S. House of Representatives voted last Tuesday to reject a 2013 Consumer Financial Protection Bureau (CFPB) bulletin that provided guidance regarding liability for discrimination in indirect auto lending. The same measure passed the Senate three weeks earlier and is now expected to be signed by the president.

The 2013 guidance was aimed at indirect auto lenders – lenders that work with auto dealers to provide loans for consumers seeking financing through the dealership where the car is purchased. Some indirect lending arrangements permit the dealer to charge the consumer an interest rate higher than that which the lender would accept, and provide compensation to the dealer tied to the amount of the markup achieved. According to the CFPB guidance, under some indirect lending arrangements, there is a “significant risk” that the incentive and discretion afforded to dealers will lead to pricing disparities based on race or other prohibited factors.

Continue Reading

Eleventh Circuit Sides with Wells Fargo on Post-Class Certification Motion to Compel Arbitration

Wells Fargo achieved a significant victory on Thursday in decade-old litigation over allegedly unlawful overdraft fees when the Eleventh Circuit held that Wells Fargo had not waived its right to compel arbitration as to the unnamed plaintiffs in the recently certified classes.

In Gutierrez v. Wells Fargo Bank, NA, No. 16-16820 (11th Cir., May 10, 2018), the Eleventh Circuit vacated the district court’s order denying Wells Fargo’s motion to compel arbitration of the unnamed plaintiffs’ claims and remanded for further proceedings. In the vacated order, the district court held that Wells Fargo waived its right to compel arbitration by acting “inconsistently with its arbitration rights during its pre-certification litigation efforts” and that the plaintiffs would suffer “significant prejudice” if Wells Fargo were allowed to invoke arbitration after nearly 10 years of litigation.

Continue Reading

CFPB Auto Lending Rule May Be on the Way Out

An Obama-era regulation intended to restrain discriminatory lending practices by automobile lenders appears to be on its way out.

On April 18, under the Congressional Review Act (CRA), the Senate voted to repeal the Consumer Financial Protection Bureau’s (CFPB’s) 2013 guidance on dealer markups in the automobile lending process. The CFPB’s guidance was in response to discriminatory lending allegations arising out of auto dealers’ use of third-party lenders to secure financing for consumer automobile purchases. When consumers purchase through dealerships, dealers will often coordinate indirect financing through a third-party lender. In some cases, dealers could charge consumers a higher interest rate than the rate quoted by the lender, also known as a “dealer markup.”

Continue Reading

Mulvaney Issues Report Outlining Proposals to Reform CFPB

Earlier this month, the Consumer Financial Protection Bureau (CFPB) issued its semiannual report (the “Report”) to the President and Congress. In the Report, Acting CFPB Director Mick Mulvaney proposes to significantly reform the CFPB’s structure and oversight. He claims that the structure of the CFPB “ignore[s] due process and abandon[s] the rule of law in favor of bureaucratic fiat and administrative absolutism.” (Report 2.) He offers four specific proposals to reform the agency.

Continue Reading

LexBlog