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Nutter Bank Report, September 2015

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The Nutter Bank Report is a monthly publication of the firm's Banking and Financial Services Group.

1. Division of Banks Issues Revised Examination Appeal Process 
2. Lender Entitled to Hearing before DOB Issues Enforcement Order, Court Rules 
3. Changes Coming to Overtime Exemption Rules for White Collar Workers 
4. CFPB Publishes Updated Compliance Guidance for New Mortgage Rules 
5. Other Developments: Same Day ACH and Military Lending Act

1. Division of Banks Issues Revised Examination Appeal Process

The Massachusetts Division of Banks has issued a new regulatory bulletin that describes the process for appealing an examination rating. The new Regulatory Bulletin 1.1-106, released on August 31, modifies the appeals process for risk management, financial, consumer protection compliance and Community Reinvestment Act (“CRA”) ratings from the appeals process formerly described by Regulatory Bulletin 1.1-101. According to the new bulletin, the Division will no longer consider a request for review of any rating other than a 3, 4 or 5 risk management, financial or consumer protection compliance rating, or a CRA rating of Needs to Improve or Substantial Noncompliance. In addition, any request for an appeal must include the word “appeal” and a statement that the appeal was approved by the appellant’s board of directors, board of trustees or principals, as applicable. The new bulletin also emphasizes that retaliation or threats of retaliation by Division staff in response to an appeal of an examination rating will not be tolerated. Click here for a copy of the new regulatory bulletin.

2. Lender Entitled to Hearing before DOB Issues Enforcement Order, Court Rules

In a recent decision, a Massachusetts trial court has ruled that the Division of Banks is required to hold a hearing before issuing an enforcement order to a licensed lender. The August 31 decision involved a lender that made small loans to Massachusetts residents with comparatively high interest rates. The lender purported to be owned by a member of a “sovereign Native American Tribal Nation,” and the terms of its standard loan agreement provide that neither the agreement nor the lender is “subject to the laws of any state of the United States of America.” After originating the small loans, the lender sold the notes and servicing rights to a California loan servicer. The California loan servicer responded to inquiries from the Division that the servicer stands in the shoes of the loan originator under Federal Indian law and is not subject to state regulation. The Division, without holding a hearing, issued cease and desist letters directing the loan servicer to refund all interest charges and fees received from Massachusetts borrowers during the previous four years. The court ruled that the Division overreached its authority under the Massachusetts small loan and debt servicer licensing statutes by issuing an enforcement order without holding a hearing where those statutes specifically require a hearing. The Massachusetts banking laws similarly require the Division to hold a hearing before issuing an enforcement order to a Massachusetts bank.

3. Changes Coming to Overtime Exemption Rules for White Collar Workers

The U.S. Department of Labor (the “DOL”) has issued proposed regulations that would significantly reduce the number of employees who qualify as exempt from federal overtime requirements. Under the Fair Labor Standards Act (“FLSA”), the federal wage and hour law, some employees may be classified as “exempt” from the FLSA’s minimum wage and overtime pay requirements. The most commonly known and used exemptions are the “white collar” exemptions applicable to executive, administrative, and professional employees. The DOL’s proposed rules would change the current regulations to more than double the current minimum salary level for exempt employees, which will be adjusted annually by the DOL. The salary level is estimated to be set at $970 per week, or $50,440 per year for 2016, under the proposed regulations. The proposal also would increase the minimum compensation for Highly Compensated Employees under the FLSA (from an annual salary of $100,000 to $122,148). The DOL has said that approximately 4.6 million workers would lose their exemption under the proposed rules (and thus be eligible for overtime pay), unless employers increase the pay of these employees to meet the new minimums. The public comment period for the proposed regulations expired on September 4. Click here for more information.

4. CFPB Publishes Updated Compliance Guidance for New Mortgage Rules

The CFPB issued a revised compliance readiness guide for lenders and updated examination procedures for the federal Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”) on September 15. The compliance readiness guide summarizes mortgage rules issued by the CFPB through July 24, 2015, including the Ability to Repay Rule and the TILA-RESPA integrated mortgage disclosure requirements. The deadline for compliance with the new TILA-RESPA integrated mortgage disclosures is October 3. Click here for a copy of the compliance readiness guide, and here for a copy of the updated examination procedures. The CFPB has also issued final amendments to Regulation Z, which implements TILA, that will expand the number of financial institutions that qualify to offer certain types of mortgages in rural and underserved areas by increasing the loan origination limit under the definition of “small creditor” from 500 to 2,000 first-lien mortgage loans, excluding loans held in portfolio by the creditor and its affiliates. The amendments also provide small creditors more time to comply with the CFPB’s new mortgage rules. The amendments will become effective on January 1. Click here for a copy of the final amendments.

5. Other Developments: Same Day ACH and Military Lending Act 

  • Fed Enhancements for Same-Day Automated Clearing House Service

The Federal Reserve on September 23 announced the approval of enhancements to its same-day automated clearing house (“ACH”) service to align the Reserve Banks’ same-day ACH service with recent amendments to NACHA’s operating rules. The enhancements become effective September 23, 2016, and require receiving depository financial institutions (“RDFIs”) to participate in the service and originating depository financial institutions to pay a fee to RDFIs for each same-day ACH forward transaction. Click here for a copy of the Federal Register notice.

  • DOD Expands Military Lending Act Credit Protections

The U.S. Department of Defense (“DOD”) has issued a final rule amending the implementing regulations of the Military Lending Act of 2006 (the “MLA”) that expands protections provided to service members and their families under the MLA and applies those protections to a wider range of credit products than the old regulation. Banks and other creditors must comply with the rule for new covered transactions beginning October 3, 2016. Click here for a copy of the final amendments.

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. 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 Bridget L. Vellucci. 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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