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Nutter Bank Report, March 2015

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The Nutter Bank Report is a monthly electronic publication of the firm’s Banking and Financial Services Group and contains regulatory and legal updates with expert commentary from our banking attorneys.

1. Supreme Court: Mortgage Loan Officers Are Not Exempt Employees
2. Federal Reserve Updates Volcker Rule Frequently Asked Questions
3. Priority Registration of “.bank” Domain Names Will Be Available
4. AOCI Opt-Out Election Deadline Is Approaching
5. Other Developments: Cybersecurity, Deposit-Related Credit and Payday Loans

1. Supreme Court: Mortgage Loan Officers Are Not Exempt Employees

The U.S. Supreme Court has reversed a ruling of the U.S. Court of Appeals for the District of Columbia Circuit that would have invalidated a 2010 U.S. Department of Labor (“DOL”) interpretation that mortgage loan officers do not fall within the administrative exemption under the DOL’s regulations on overtime pay. The Supreme Court’s March 9 ruling upholds Administrator’s Interpretation No. 2010-1 issued by the DOL, which concludes that mortgage loan officers (also referred to as loan representatives, loan consultants and loan originators) do not qualify as administrative employees exempt from minimum wage and overtime requirements under the Fair Labor Standards Act (“FLSA”). In 2006, the Wage and Hour Division of the DOL issued an opinion letter concluding that mortgage loan officers fell within the administrative exemption under overtime pay regulations issued in 2004. In 2010, the DOL withdrew the 2006 opinion letter and reversed its prior interpretation. The Supreme Court’s ruling came in a lawsuit originally brought by the Mortgage Bankers Association in 2011 seeking to invalidate the 2010 DOL interpretation on the basis that the DOL failed to follow the Administrative Procedures Act’s notice-and-comment procedures.

    Nutter Notes: Administrator Interpretations are not binding precedent in a court action but they are given deference as an opinion of the agency charged with enforcing the FLSA. Depository institutions that do not currently track hours worked by their mortgage loan officers or pay overtime for hours worked in excess of forty per week should review these practices in light of the March 9 Supreme Court ruling. Institutions should also note that a job title does not determine whether an employee is exempt from FLSA minimum wage and overtime requirements. The employee’s actual job duties and compensation determine whether the employee is exempt or nonexempt. Administrator’s Interpretation No. 2010-1 applies to employees who perform the typical job duties of a mortgage loan officer and spend the majority of their time working inside the institution’s offices, including employees who work in home offices from time to time. The interpretation does not apply to mortgage loan officers who customarily and regularly work away from their employer’s place of business.

2. Federal Reserve Updates Volcker Rule Frequently Asked Questions

The Federal Reserve has updated its answers to frequently asked questions (“FAQs”) about Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule, which generally prohibits banks and any company affiliated with a bank from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund (“covered funds”). The most recent update, posted on February 27, clarifies the application of the marketing restriction that applies to an exemption for certain covered fund activities conducted by foreign banking entities. The Federal Reserve regulations that implement the Volcker Rule provide an exemption for certain covered fund activities conducted by foreign banking entities. The exemption requires that, among other conditions, “no ownership interest in such hedge fund or private equity fund is offered for sale or sold to a resident of the United States.” The FAQs clarify that this marketing restriction applies to the activities of the foreign banking entity that is seeking to rely on the exemption (including its affiliates), but the marketing restriction does not apply more generally to the activities of any other person offering for sale or selling ownership interests in the covered fund. Therefore, a foreign banking entity that makes an investment in a so-called third-party covered fund may rely on the exemption as long as the foreign banking entity complies with the marketing restriction, regardless of whether unaffiliated persons offer ownership interests in the fund to residents of the United States.

    Nutter Notes: The Federal Reserve said that its interpretation of the marketing restriction is consistent with the policy of limiting the extraterritorial application of the Volcker Rule to foreign banking entities while seeking to ensure that the risks of covered fund investments by foreign banking entities occur and remain solely outside of the United States. According to the FAQs, if the marketing restriction were applied to the activities of third parties, such as the sponsor of a third-party covered fund (rather than the foreign banking entity investing in a third-party covered fund), then the exemption may not be available in circumstances where the activities of a foreign banking entity with respect to its investment in the covered fund are solely outside the United States. A foreign banking entity that participates in an offer or sale of covered fund interests to a resident of the United States cannot rely on that exemption with respect to that covered fund. The Federal Reserve also said that a foreign banking entity will be viewed by regulators as participating in any offer or sale by a covered fund of ownership interests in the covered fund to a resident of the United States if the foreign banking entity sponsors or serves, directly or indirectly, as the investment manager, investment adviser, commodity pool operator or commodity trading advisor to the covered fund and the covered fund offers or sells covered fund ownership interests to a resident of the United States.

3. Priority Registration of “.bank” Domain Names Will Be Available

The “.bank” top level domain (“TLD”) will become generally available on a first-come, first-served basis on a date estimated to be between June 15 and June 24, 2015. This new generic TLD (“gTLD”) will be available only to bona fide banking institutions. The operator of the “.bank” TLD will be fTLD Registry Services, LLC in Washington, D.C. The general availability of the “.bank” domain will be preceded by a 30-day “sunrise period” for priority registration by banks that have registered their service marks with the Trademark Clearinghouse operated by the Internet Corporation for Assigned Names and Numbers (“ICANN”), the global overseer of the internet. A bank with a federally registered service mark that wishes to obtain the “.bank” TLD counterpart of its federally-registered service mark, and wishes to take advantage of the 30-day sunrise period, must promptly register its federally-registered service mark with the Trademark Clearinghouse before the sunrise period opens. For example, if there were a federal service mark registration for ALPHA BANK, then the bank with that registration would register ALPHA BANK with the Trademark Clearinghouse and, during the sunrise period (opening on or about June 15, 2015), would be entitled to priority registration of the domain name “” The bank, in that example, would not be permitted to receive the domain name “” Registering with the Trademark Clearinghouse is done online at

    Nutter Notes: It is unclear whether “.bank” for the banking industry will attain the indispensability and the global ubiquity of “.com”. Registrations of domain names in the other new gTLDs – including, for example, “.college” – are not meeting ICANN’s expectations. The timeline to register a federally-registered banking service mark is as follows:

1. During the month of April, 2015, register federally-registered service marks with ICANN’s Trademark Clearinghouse.
2. Beginning on or about May 18, 2015, apply during the sunrise period to register the “.bank” counterpart of the twice registered (ICANN and U.S. Trademark Office) service mark.
3. General availability of “.bank” domain names commences on or about June 15, 2015.

4. AOCI Opt-Out Election Deadline Is Approaching

For banking organizations that are not subject to the advanced approaches risk-based capital rules, the deadline is approaching to elect to calculate regulatory capital using the treatment for accumulated other comprehensive income (“AOCI”) permitted under the general regulatory capital rules in effect prior to January 1, 2015. The AOCI opt-out election must be made on Schedule RC-R of a bank’s Call Report and, for holding companies, Schedule HC-R on Form FR Y-9C, for the period ending March 31, 2015. Under the revised regulatory capital rules, AOCI is generally included in regulatory capital. However, the capital rules permit a banking organization that is not an advanced approaches institution to make a one-time, permanent election to opt out of the requirement to include most components of AOCI in regulatory capital. Consistent with the regulatory capital rules in effect prior to January 1, 2015, a banking organization that makes the opt-out election must add to common equity tier 1 capital any net unrealized losses and subtract any net unrealized gains on available-for-sale debt securities, and include in common equity tier 1 capital any net unrealized losses on available-for-sale equity securities (including mutual funds). A bank that is a subsidiary of a bank holding company must make the same opt-out election as its parent holding company.

    Nutter Notes: Consistent with the Basel III capital reforms, the proposed regulatory capital framework originally required all banking organizations to include AOCI components in the calculation of common equity tier 1 capital, except gains and losses on cash-flow hedges where the hedged item is not recognized on a banking organization’s balance sheet at fair value. In the release accompanying the final rules, the federal banking agencies acknowledged that including some AOCI components in common equity tier 1 capital, such as unrealized gains and losses related to debt securities, could introduce substantial volatility in a banking organization’s regulatory capital ratios. That volatility could lead to significant difficulties in capital planning and asset-liability management, according to the agencies. Therefore, the revised regulatory capital framework permits banking organizations that are not subject to the advanced approaches risk-based capital rules – institutions with less than $250 billion in assets or less than $10 billion in foreign exposures – to elect to calculate regulatory capital by using the treatment for AOCI in the agencies’ general risk-based capital rules in effect prior to January 1, 2015, which excludes most AOCI components.

5. Other Developments: Cybersecurity, Deposit-Related Credit and Payday Loans 

  • FFIEC to Provide Cybersecurity Self-Assessment Tool

The FFIEC announced on March 17 that it plans to issue a self-assessment tool this year to assist banking organizations in evaluating their inherent cybersecurity risk and their risk management capabilities. The cybersecurity self-assessment tool is one of several cybersecurity priorities the FFIEC plans to roll out this year.

    Nutter Notes: The FFIEC said that it will update and supplement its Information Technology Examination Handbook this year to reflect rapidly evolving cyber threats and vulnerabilities with a focus on risk management and oversight, threat intelligence and collaboration, cybersecurity controls, external dependency management, and incident management and resilience. The FFIEC also plans to enhance its incident analysis, crisis management, training and policy development, and expand its focus on technology service providers’ cybersecurity preparedness. 

  • OCC Issues a Revised Deposit-Related Credit Booklet

The OCC issued the “Deposit-Related Credit” booklet of the Comptroller's Handbook on March 6. The booklet replaces and clarifies the OCC’s “Deposit-Related Consumer Credit” booklet that was issued earlier this year. The Deposit-Related Credit booklet is a summary restatement of existing laws, regulations and policies applicable to deposit-related credit products and services and is not meant to change existing OCC policy.

    Nutter Notes: The OCC announced on February 20 that it would be removing the “Deposited-Related Consumer Credit” booklet from its website. The OCC’s February 11 booklet appeared to require national banks and federal savings associations to change overdraft protection products and services. However, the OCC later stated that the booklet was not intended to establish new policy. 

  • CFPB to Issue Rules for Payday and Other Similar Loans

The CFPB announced on March 26 that it is developing rules that would require lenders that make so-called payday and other similar loans to take steps to verify that consumers can repay such loans. The CFPB’s proposals would also restrict lenders from attempting to collect payment from consumers’ bank accounts in ways that tend to generate excessive fees.

    Nutter Notes: The CFPB’s new consumer protection rules would apply to payday loans and other short-term loans, such as vehicle title loans and deposit advance products. The rules would also target high-cost, longer-term credit products of more than 45 days where the lender collects payments through access to the consumer’s deposit account or paycheck, or holds a security interest in the consumer’s vehicle, including longer-term vehicle title loans and certain installment and open-end loans.

Nutter Bank Report

Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, after interviewing our clients and our peers in the profession, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. The 2012 Chambers and Partners review says that a “broad platform” of legal expertise in the practice “helps clients manage challenges and balance risks while delivering strategic solutions,” while the 2013 Chamber and Partners review reports that Nutter’s bank clients describe Nutter banking lawyers as “proactive” in their thinking, “creative” in structuring agreements, and “forward-thinking in terms of making us aware of regulation and how it may impact us,” which the clients went on to describe as “indicative of a true partner.” The 2014 Chamber and Partners review describes us as “great – very knowledgeable, very responsive and very nice.” Visit the U.S. rankings at The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Lisa M. Jentzen. The information in this publication is not legal advice. For further information, contact:

Kenneth F. Ehrlich
Tel: (617) 439-2989

Michael K. Krebs
Tel: (617) 439-2288

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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