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Nutter Bank Report, May 2011

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1. Federal Agency Takes Aim at Social Media Policies and Practices
2. GAO Recommends that Federal Bank Regulators Improve CRE Guidance
3. OCC Proposes Rule to Implement Dodd-Frank Preemption Requirements
4. Proposed Rule Would Establish New Requirements for Remittance Transfers
5. Other Developments: Interest-Bearing DDAs and Small Business Lending Fund

1. Federal Agency Takes Aim at Social Media Policies and Practices

The National Labor Relations Board (“NLRB”), the federal agency responsible for enforcing the National Labor Relations Act (“NLRA”), has recently been pursuing alleged violations of the NLRA arising out of the social media policies and practices of employers. The NLRB’s Chicago Regional Office issued a complaint on May 20 against a car dealership alleging that the dealership violated the NLRA by terminating an employee who had criticized the quality of food and beverages at a dealership promotional event on his Facebook page, which was accessible by other employees of the dealership. The Chicago complaint is the latest action by the NLRB in its efforts to protect employees’ rights to engage in protected “concerted activity” under the NLRA. The NLRB’s Buffalo Regional Office issued a complaint on May 9 against a New York non-profit alleging that the non-profit violated the NLRA by terminating five employees who had complained about their working conditions in a Facebook discussion. Last November, the NLRB’s Hartford Regional Office issued a complaint against a medical transportation company, contending that the company’s termination of an employee for disparaging a supervisor on her Facebook page was illegal, as was the social media policy that the company acted upon in terminating the employee.

      Nutter Notes:  The NLRA’s protection of concerted activity extends to all workplaces – unionized and non-unionized – including state- and federally-chartered depository institutions. Many non-union employers incorrectly believe that the NLRA does not apply to non-union employers. In each of the cases cited above, the NLRB has taken the position that the employer’s limitations of an employee’s right to communicate about the workplace using social media was overly broad, and violated the employee’s right to engage in protected “concerted activity” under the NLRA. Social media policies that, for example, prohibit an employee from “disparaging” the bank or its supervisors or co-workers on a social media site likely would be viewed as unlawful by the NLRB, and the discipline or termination of an employee for violating such a policy likely would be viewed as unlawful as well.

2. GAO Recommends that Federal Bank Regulators Improve CRE Guidance

The U.S. Government Accountability Office (“GAO”), an independent agency that investigates how the federal government spends taxpayer dollars, recommended in a recent report to Congress that the federal banking regulators enhance or supplement existing guidance on commercial real estate (“CRE”) lending concentrations. The federal banking regulators issued guidance on CRE loan concentrations and risk management in 2006 and supplementary guidance and statements on meeting credit needs of communities and conducting CRE loan workouts from 2008 to 2010 (together, the “CRE Guidance”). The May 19 GAO report identified inconsistencies in the ways federal bank examiners have applied the CRE Guidance. The report examines, among other issues, how the FDIC, Federal Reserve and OCC have responded to recent trends in CRE markets, the controls they have in place for ensuring consistent application of the guidance, and the relationship between the banking agencies’ supervision practices and CRE lending. The GAO also reported that federal regulatory officials have differing views on the adequacy of the CRE Guidance, and that some examiners and bankers believe that the guidance is not sufficiently clear.

      Nutter Notes:  The GAO report concludes that examiners and bankers may not have a common understanding about CRE concentration risks, and recommends that the federal banking regulators take steps to better ensure that CRE guidance is consistently applied. The GAO reported that a number of banks said that examiners have been applying the loan concentration and risk management guidance more stringently since the financial crisis began and believe that regulators have been too harsh in treatment of CRE loans. While the federal banking regulators have issued statements and guidance encouraging banks to continue lending to creditworthy borrowers and explaining how banks can work with troubled borrowers, some banks reported to the GAO that examiners’ treatment of CRE loans has hampered their ability to lend. The GAO report said that economic research on the effect of regulators’ examination practices on banks’ lending decisions is limited, but shows that examiners’ increased scrutiny during credit downturns can have an adverse impact on overall lending.

3. OCC Proposes Rule to Implement Dodd-Frank Preemption Requirements

The OCC has issued a proposed rule implementing several provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), including changes to preemption standards for national banks and federal savings associations, and changes to the OCC’s visitorial authority. The proposed rule announced on May 25 would eliminate preemption for national bank operating subsidiaries consistent with Dodd-Frank Act requirements and remove language from OCC rules that provides that state laws that “obstruct, impair or condition” a national bank’s powers are preempted. The proposal would also revise the OCC’s visitorial powers rule to conform to the holding of a recent Supreme Court decision, and would apply national bank preemption standards to federal savings associations and their subsidiaries. The proposed rule would also make a number of other changes needed to facilitate the regulatory transition of the examination, supervision and regulation of federal savings associations from the OTS to the OCC. Comments on the proposed rule are due by June 27, 2011.

      Nutter Notes:  Separately, the OCC issued a legal interpretation on May 12 that addresses how the OCC would interpret particular aspects of the preemption provisions of the Dodd-Frank Act and which existing judicial decisions, interpretations and OCC rules are preserved by the Dodd-Frank Act. The interpretation (OCC Interpretive Letter No. 1132) responds to questions about the Dodd-Frank Act preemption provisions posed by Senators Thomas R. Carper and Mark Warner, who authored the preemption provisions that were included in the Senate version of the bill that became the Dodd-Frank Act. The Senators specifically asked the OCC to provide more information about how it would interpret the provision of the new law that incorporates the standard for preemption articulated in the Supreme Court’s decision in Barnett Bank of Marion County, N.A. v. Nelson. According to the OCC interpretation, the OCC takes the view that the provision is a directive to apply the “conflict preemption” standard articulated in the Barnett decision as the starting point in a preemption analysis. The interpretive letter said that the OCC’s analysis would not stop there and must consider “the whole of the conflict preemption analysis in the Supreme Court’s decision.”

4. Proposed Rule Would Establish New Requirements for Remittance Transfers

The Federal Reserve has issued a proposed rule that would create new protections, including new disclosures, for consumers who send remittance transfers to recipients located in a foreign country. The proposed rule released on May 12 would implement Section 1073 of the Dodd-Frank Act, which added a new Section 919 to the Electronic Fund Transfer Act (“EFTA”) that requires remittance transfer providers, including banks, to provide senders of remittance transfers with certain disclosures. The proposed rule would amend the Federal Reserve’s Regulation E, which generally implements the EFTA, to require that a remittance transfer provider provide a written pre-payment disclosure to a sender containing information about the transfer, such as the exchange rate, applicable fees and taxes, and the amount to be received by the designated recipient. The rule would permit oral pre-payment disclosures if the transaction is conducted entirely by telephone. The remittance transfer provider also would be required to provide a written receipt when payment is made for the remittance transfer. The proposed rule includes a series of model forms that may be used to comply with the new disclosure requirements. Comments on the proposed rule are due by July 22, 2011. The Consumer Financial Protection Bureau will be responsible for completing the final rule, as it will take over rulemaking authority under the EFTA from the Federal Reserve on July 21, 2011.

    Nutter Notes:  The term “remittance transfer” refers to a transaction where a consumer sends funds to an individual located in another country, often the consumer’s country of origin, by wire transfer, an international automated clearing house transaction or other method. According to the Federal Reserve, traditional remittance transfers typically consist of consumer-to-consumer payments of low monetary value. In addition to the new disclosure requirements, the Dodd-Frank Act provides error resolution rights for senders of remittance transfers and directs the Federal Reserve to promulgate standards for resolving errors and rules concerning recordkeeping requirements, cancellation and refund policies. The error resolution procedures would be generally similar to those that apply to a financial institution with respect to errors involving electronic fund transfers under Regulation E. The proposal also provides remittance transfer senders certain cancellation and refund rights. The Dodd-Frank Act requires that the rules be finalized not later than January 21, 2012.

5. Other Developments: Interest-Bearing DDAs and Small Business Lending Fund

  • Customer Notices If Interest Paid on Formerly Noninterest-Bearing DDAs

The FDIC issued a reminder to insured depository institutions on May 25 that, if an institution modifies the terms of a demand deposit account (“DDA”) so that the account may pay interest going forward, the institution must notify affected customers that the account no longer will be eligible for unlimited deposit insurance coverage as a noninterest-bearing transaction account. The notice requirement does not apply to DDAs modified after December 31, 2012.

    Nutter Notes:  Section 627 of the Dodd-Frank Act permits insured depository institutions to pay interest on DDAs starting July 21, 2011. Section 343 of the Dodd-Frank Act provides unlimited insurance coverage only for noninterest-bearing transaction accounts at insured depository institutions from December 31, 2010 through December 31, 2012.

  • Treasury Report Recommends Changes to the Small Business Lending Fund Program

The Office of the Inspector General of the U.S. Treasury Department issued a report on May 13 recommending that Treasury evaluate the reasonableness of small business lending plan goals before making investment decisions under the Small Business Lending Fund (“SBLF”) program. SBLF applicants are required to submit small business lending plans, but the Treasury report found that no regulatory agency planned to review the plans for the likelihood of success.

     Nutter Notes:  Treasury launched an audit of the SBLF to determine whether the decision process established by Treasury ensures that eligible institutions in need of capital or with the most potential for small business lending are approved, and whether investments are made in institutions with good track records relating to performance and regulatory compliance.

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, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. The 2009 Chambers and Partners review says that a “real strength of this practice is its strong partners and . . . excellent team work.” Clients praised Nutter banking lawyers as “practical, efficient and smart.” 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 Liam T. O’Connell and Lisa M. Jentzen. Mr. O’Connell is the chair of the Firm’s Labor, Employment and Benefits practice group and authored the report on NLRB enforcement actions relating to social media policies and practices. For further information, contact 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

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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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