Clarks' Secured Transactions Monthly : Mealey's : Legal News & Analysis

Clarks' Secured Transactions Monthly

August 20, 2021
Financing Healthcare Receivables: Sure, You Can Take A Security Interest, But Can You Enforce?

The healthcare industry has struggled for some time with solving operational weaknesses and cutting expenses to become profitable on Medicare rates. This has created instability and put significant pressure on hospital margins. As lenders evaluate loans made in the healthcare industry, one of the main sources of revenue—and repayment of debts—are reimbursements that healthcare providers receive from the Center for Medicare and Medicaid Services ("CMS"). Many healthcare borrowers include healthcare insurance receivables and accounts in their borrowing bases. This article explores best practices and potential pitfalls for enforcing—not just perfecting—a security interest in these receivables.
August 20, 2021
Attorney’s Fees: Requirements For Obtaining “Fees On Fees” In The Engagement Letter And Guaranty

The prior story discusses the damages award in the KLS Diversified Master Fund litigation recently issued by the Southern District of New York. KLS Diversified Master Fund, L.P. v. McDevitt, No. 19-cv-3774 (LJL), 2021 U.S. Dist. LEXIS 64871 (S.D.N.Y. Apr. 2, 2021) (KLS Fund II). An interesting twist to the plaintiff’s request for damages involved the request by plaintiff’s counsel for attorney’s fees based on “fees on fees”.
August 20, 2021
Guarantor Liable For Full Indemnification When Federal Court Finds Guaranty Titled “Conditional” Is “Unconditional”

By definition, guarantors in financing transactions are risk takers. But the degree of risk assumed can be controlled depending on the terms of the guaranty. Attempts at dodging the obligations in a guaranty titled “conditional” are likely to be futile when the terms create an “unconditional” guaranty.
August 20, 2021
CFPB Expands Safe Harbor Exemption In The Remittance Rule

Regulation E implements protections for persons who send remittances to individuals and businesses in foreign countries (Remittance Rule). The most recent amendments to the Remittance Rule promulgated by the Consumer Financial Protection Bureau (CFPB or Bureau) raised the safe harbor compliance exemption threshold (2020 Safe Harbor Exemption).The consequences are most important for smaller players in the marketplace.
July 30, 2021
The Masquerade: Federal Bankruptcy Decision Explores “True Leases” Vs. “Disguised Security Interests”

Is a transaction purporting to be a lease actually a “true lease” or a “disguised security interest”? This is one of the quintessential questions governed by the Uniform Commercial Code (UCC). A recent bankruptcy decision from New Mexico explores the issue.
July 30, 2021
Congressional Review Act Kills True Lender Rule: What Now?

On June 30th, President Biden signed into law three joint resolutions under the Congressional Review Act (“CRA”). One of those resolutions, S.J.Res. 15, disapproved of and nullified the Office of the Comptroller of the Currency’s rule titled “National Banks and Federal Savings Associations as Lenders,” more commonly known as the true-lender rule. The resolution passed Congress with essentially unanimous Democratic approval but with only one Republican House member and 3 Republican Senators signing on.
June 07, 2021
Massive Payment Error Litigation Expeditiously Moving Along

In the March 2021 edition of this newsletter, we reported on the decision of the Southern District of New York in a lawsuit involving a massive wire-transfer mistake. The Second Circuit has entered a briefing schedule, which will see the appeal (Case No. 21-487) fully briefed by late-July, with oral argument set to occur in August or September of 2021. In the meantime, the parties have recently finished briefing in the Southern District related to Citibank’s motion for an injunction that would prohibit the defendants from distributing the erroneously transferred funds in the meantime. The briefing hints at how the issues on appeal may shake out and how the decision is already beginning to impact the wire-transfer industry.
June 07, 2021
CFPB Revives UDAAP “Abusive” Standard Without Policy Guidelines

The Consumer Financial Protection Bureau (CFPB or Bureau) recently rescinded an earlier Trump-era policy statement effectively dismantling the “abusive” prong of the “unfair, deceptive, or abusive act or practices” prohibition added to the federal consumer protection law by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or Dodd Frank).
June 07, 2021
Fintech Charters: The Saga Continues

In March, the Second Circuit Court of Appeals heard oral argument in Lacewell v. Office of the Comptroller of the Currency (Case No. 19-04271). This is the appeal from the Southern District of New York lawsuit in which the New York Department of Financial Services challenged the OCC’s decision to begin accepting special purpose national bank charters (“SPNB charters” or “fintech charters”) from financial technology companies that would participate in certain aspects of the business of banking but which would not receive deposits. (S.D.N.Y. Case No. 18 Civ. 8377) The district court sided with DFS, determining that DFS had standing and that the National Bank Act precluded the OCC from issuing charters to entities that do not receive deposits.
May 25, 2021
Foreclosing Parties Get Ready For Moratoriums To Lift: Importance Of UCC Principle “Mortgage Follows The Note”

The following story explains in greater depth how possession of the promissory note is the key to establishing standing in judicial proceedings where execution on the note and foreclosure on the underlying mortgage are the subjects of the lawsuit. The story reviews the role of the long-standing principle that the “mortgage follows the note,” codified in UCC § 9- 203(g), central to a 2020 decision by a New Mexico state court.
May 25, 2021
Sixth Circuit Allows Class Action Against BB&T To Go Forward, Finding Arbitration Clause Constituted A Contract Of Adhesion

Common sense suggests that account holders will become disgruntled when their money market investment accounts (MMIAs) are converted into money rates savings account (MRSAs) and subsequently, the bank lowers the interest rate from a guaranteed 6.5% to the then variable market rate of 0.01% per year.
May 25, 2021
Removing The Federal “Sword Of Damocles” From Marijuana-Related Banking

Federal legislation giving financial institutions the green light to bank marijuana-related-businesses (MRBs) is once again before the 117th Congress. This time around there seems to be bipartisan support in both the House and Senate for passage.
May 25, 2021
Be Prepared: CFPB Proposes Extending Forbearance Under Mortgage Servicing Rule

In the coming months, millions of mortgage loan borrowers are expected to exit forbearance programs enacted early during the Covid-19 emergency by certain government agencies, according to the press release dated April 5, 2021, issued by the Consumer Financial Protection Bureau (CFPB).
April 07, 2021
Exercising UCC Foreclosure Remedies As The Pandemic Eases

A recent battle between economically stretched lenders and defaulting borrowers which played out before a New York lower court provides a good case study of how the changing COVID-19 pandemic is influencing the exercise of UCC foreclosure remedies involving mezzanine financing.
April 07, 2021
$900 Million Payment Error Brings “Discharge For Value” Defense To The Fore

A blockbuster lawsuit out of the Southern District of New York—involving a nearly $900 million wire-transfer mistake—has raised a host of questions about fairness, equity, and the “discharge for value” affirmative defense. The case, which is already subject to an expedited appeal in the Second Circuit, is certain to be a hot topic for some time to come and promises—one way or another—to have a lasting impact upon the wire transfer industry.
April 07, 2021
Paypal’s Win In DC Federal Court Dismantling Part Of The Prepaid Accounts Rule To Be Tested On Appeal

For years, payments giant PayPal wrangled unsuccessfully with the Consumer Financial Protection Bureau (Bureau or CFPB) over its decision to treat certain types of “digital wallets” capable of storing funds as “prepaid accounts” subject to the Bureau’s prepaid accounts rule. After the Bureau finalized its prepaid accounts rule, PayPal brought a lawsuit in the United States District Court for the District of Columbia challenging two key provisions of the final prepaid rulemaking.
March 15, 2021
Justice Barrett’s Seventh Circuit Decision On Standing Signals Trouble For Consumers

Newly minted Supreme Court Justice Amy Coney Barrett authored a significant decision while serving as an appellate judge on the Seventh Circuit. The decision is directly relevant to the financial services industry and consumers. The holding of the case allowed federal standing requirements to close the gateway to federal jurisdiction in a class action lawsuit brought under a consumer protection statute.
March 15, 2021
States Challenge OCC’s True Lending Rule; OCC’s Position On Firm Ground

The dispute between states and the federal government regarding how to determine which entity—a bank or its lending partner—is the “true lender” recently entered a new phase. Seven states (California, Colorado, Massachusetts, Minnesota, New Jersey, New York, and North Carolina) and the District of Columbia (the “States”) joined to sue the Office of the Comptroller of the Currency (“OCC”) in an effort to undo the OCC’s recently issued final rule on National Banks and Federal Savings Associations as Lenders (the “Rule”), which specifies when a bank is the “true lender” of a given loan.
March 15, 2021
Statutory Oil And Gas Producers’ Liens: Oklahoma Producers Take Comfort And Texas Producers Take Care

For the second time since 2017, a federal appeals court has weighed in on whether special statutory lien provisions designed to help ensure that owners of oil and gas interests receive payment from the first purchasers of the hydrocarbons actually provide interest owners with the protection they hope for. This time, an appeal from an adversary proceeding related to the First River Energy, L.L.C. bankruptcy provided the Fifth Circuit Court of Appeals with the opportunity to consider the oil and gas lien provisions. As anticipated, the Fifth Circuit ruled that Oklahoma’s Oil and Gas Owners’ Lien Act of 2010 provided solid protection to interest owners in Oklahoma, while Texas’s non-standard UCC 9.343 once again failed to provide the automatic protection that Texas interest owners undoubtedly wish it did. The case is Deutsche Bank Trust Co. Ams. v. U.S. Energy Dev. Corp. (In re Fist River Energy, L.L.C.), ___ F.3d ___, 2021 U.S. App. LEXIS 3032.
February 04, 2021
Attempt To Characterize Secured Financing As Express Trust Fails To Persuade Montana Bankruptcy Court

Bankruptcy courts are probably the only courts in which motions related to stays involve interesting legal issues with any regularity. Case in point: A recent bankruptcy decision from the District of Montana considered—on a motion to modify stay—whether a “Wholesale Financing Agreement” (“WFA”) and a “Wholesale Finance Security Agreement” (“WFSA”) created a creditor-debtor relationship or an express trust. The decision, which holds that a secured financing rather than a trust was created, contains solid analysis of a number of frequently encountered Article 9 issues. The case is In re Hawaii Motorsports, LLC, 2020 Bankr. LEXIS 3428 (Bankr. D. Mont. Dec. 7, 2020).
February 04, 2021
New Round Of PPP: Recent Legislative, Regulatory, And Judicial Developments

The end of 2020 and start of 2021 have been marked by a new round of Paycheck Protection Program legislation and updated regulations, as well as a number of decisions from the courts concerning PPP issues—all of which hopefully provides additional clarity for a program in which clarity has often been sorely lacking.
February 04, 2021
CFPB Debt Collection Practices Rule Part II Finalized Creating Challenges For Bankers And Debt Collectors

In the waning days of the Trump Administration, the Consumer Financial Protection Bureau fulfilled its promise to address the holes left in its first set of rulemaking amending the federal debt collection rule known as Regulation F. The finalizing amendments are now complete, making it possible to gain some preliminary perspective on the 2020 revised regulation in its entirety.
January 08, 2021
Sedona Conference Commentary On A Reasonable Security Test: In Synch With Financial Institution Regulation?

Early in this millennium, the Sedona Conference earned a reputation for providing helpful, workable guidance for emerging and overlooked or underserved areas of the law, particularly e-discovery. Via a series of think-tank-style working groups focused on discrete legal issues, the Sedona Conference tries to create “practical solutions and recommendations” which are then “developed and enhanced through a substantive peer-review process” and ultimately “widely published in conjunction with educational programs for the bench and bar, so that it can swiftly drive the reasoned and just advancement of law and policy in the areas under study.” Many judicial decisions—especially from the district courts that must effectively, efficiently, and justly administer the law and civil rules—rely upon and even praise the principles developed by the Sedona Conference, whose mission “is to move the law forward in a reasoned and just way through the creation and publication of nonpartisan consensus commentaries and through advanced legal education for the bench and bar.”
January 08, 2021
New PPP $2M Loan Necessity Questionnaire Strays From Cares Act

The banking industry entered the coronavirus pandemic in a position of relative strength—far stronger than it was before the Great Recession. As a result, everyone from bank customers to the federal government has looked to banks to help them weather the COIVD-19 storm. In particular, the CARES Act and its Paycheck Protection Program (“PPP”) created a structure that used banks as conduits for quickly distributing hundreds of billions of dollars of loans to businesses in the hopes that those businesses could continue to pay employees, mortgages and leases, and utilities and thus remain in business.
December 18, 2020
Texas Federal Court Stay Lifted: CFPB Defends Gutted Payday Lending Final Rule While Pandemic Heightens Need For Small Dollar Loans

After years of regulatory juggling, in July 2020 the Consumer Financial Protection Bureau (CFPB) released its so-called “Final Payday Lending Rule,” revoking the mandatory Underwriting Provisions of the 2017 Final Rule. The CFPB’s revocation of the Underwriting Provisions represents an enormous win for the small dollar lending industry. The latest iteration of the Final Rule leaves the Payment Provisions intact. Long overshadowed by the controversy over the Underwriting Provisions, the Payment Provisions are now the center of attention although the Underwriting Provisions may be resurrected when the new Biden Administration takes control of the CFPB.