August 23, 2013

NC Lawyers: An Update from the NC State Bar on Email Ethics

Photo credit: Prad Prathivi @ Amodica:/ Foter
I've previously written about legal ethics issues involved when a lawyer sends an email message to opposing counsel and copies the receiving lawyer's client (e.g., using the "cc" or "reply all" function).  My earlier analysis of the State Bar Ethics Committee's opinion on the topic was published in The Business Lawyer in May 2013.  In that article, I explained the State Bar Ethics Committee's position:

"The second part of the Opinion addresses the issue of implied consent by asking whether a lawyer may "reply to all" when he or she has received an email message on which opposing counsel has copied his or her own client. The answer, again, is 'no.' The Opinion completely rejects the concept of "implied consent.' In concluding consent must be explicit, the State Bar considered recent opinions of the state bars of New York and California."
The State Bar has since reconsidered, and recently published revisions to the proposed opinion.  The opinion now reads:
"The fact that Lawyer B copies her own client on the electronic communication to which Lawyer A is replying, standing alone, does not permit Lawyer A to 'reply all.' While Rule 4.2(a) does not specifically provide that the consent of the other lawyer must be 'expressly' given, the prudent practice is to obtain express consent. Whether consent may be 'implied' by the circumstances requires an evaluation of all of the facts and circumstances surrounding the representation, the legal issues involved, and the prior communications between the lawyers and their clients."
Therefore, while the best practice is to obtain express written consent before copying an opposing party on an email to opposing counsel, it may be possible to correctly infer consent from the facts and circumstances. 

Transactional lawyers, who often copy one another's clients on emails when putting together deals, will likely be relieved by the flexibility of the revised opinion.  In my view, this is a prudent decision by the State Bar Ethics Committee, and I commend the Committee for its willingness to listen to the commenters and take a measured approach to this matter.

You can read the entire revised opinion here.

August 17, 2013

Changes to North Carolina's Consumer Finance Act

The General Assembly recently passed, and the Governor signed, legislation modifying the North Carolina Consumer Finance Act, the statute that has regulated consumer finance companies for half a century.

What is the Consumer Finance Act?

The Consumer Finance Act requires that anyone who is in the business of making small loans to consumers must obtain a license from the Commissioner of Banks.  One of the benefits of obtaining a license is that licensees may charge more than the amount allowed by Chapter 24 of the General Statutes.  Chapter 24 (captioned "Interest") is one of North Carolina's usury statutes.  It generally limits interest on loans of $25,000 or less to the rate published by the Commissioner of Banks on the fifteenth day of each month.  The rate published by the Commissioner is determined by taking the latest published rate paid on six-month U.S. Treasury bills and adding 6%.  (The rate can never exceed 16%, however.)  Obviously, in the current interest rate environment, the rate allowed by Chapter 24 is very low, and few would be willing to make personal loans at such low rates.
Photo credit: Thomas Hawk / Foter / CC BY-NC

How has the Consumer Finance Act been amended?

Amount The dollar amount allowed for consumer loans under the Act was raised from $10,000 to $15,000

Permitted Rates. The rates allowed by law have also changed.  A licensee may now make a loan (or loans) that are not secured by real estate, payable monthly, with a maturity between one and eight years, at the following interest rates:
  • For a loan exceeding $10,000, 18% (per annum) on the outstanding principal balance; or
  • For a loan up to $10,000, 30% (per annum) on the first $4,000, 24% (per annum) on the amount of principal that is between $4,000 and $8,000, and 18% (per annum) on the remainder of the unpaid principal balance. (However, the consumer finance lender must enter into an agreement with a consumer for interest at the single simple interest rate that would earn the same amount of interest as allowed by this provision.)
(Under the previous statute, rates were capped under Section 173, but alternate rates were permitted under an "optional" provision in Section 176.  In practice, most loans were actually being made under the Section 176.  The amendments to the Act removed the rate caps in Section 173 and changed the provisions of Section 176 so that all consumer finance loans will be Section 176 loans in the future.)

Application of Payments. All payments must be applied first to late charges and other charges, then to accrued interest, and then to principal.   Prepayment penalties are forbidden.

Late Fees.   Prior to the changes, the Act did not address late fees.  The amendments now expressly permit late fees, subject to the following limitations:
  • A late fee may only be charged when a payment is past due for 10 days or more after the due date.
  • No late payment fee may exceed $15.00.
  • A late payment fee may not be charged more than once with respect to a single late payment.
  • If a late payment fee has been charged for a particular late payment, no late fee may be charged with respect to any future payment which would have been timely had it not been for the previous default.
Application of Lender's Insurance A licensed lender may collect a fee to purchase a nonfiling or nonrecording insurance policy (to reimburse the lender for losses if the lender's security interest is not recorded as required by the UCC).  If the lender collects a payment from the insurer after making a claim under the policy, the lender will be required to do the following:
  • Credit the full amount of the insurance proceeds to the balance of the loan.
  • If the loan is paid in full by the application of the insurance proceeds, the lender must close the loan account and cease collection efforts.
  • Provide the borrower written notice that, among other things, the loan has been partially paid or paid in full by the insurance proceeds.
  • Cancel or credit, as appropriate, any judgments against the borrower arising from the loan.
  • Report any adjustments to the credit bureau(s) to which the lender reports.
 Other Businesses on Premises.  Consumer lenders were already prohibited from making consumer loans in a place where another kind of business is solicited or transacted.  The changes make clear that merely collecting insurance premiums or paying insurance benefits is not considered "another business."

How did this amendment come about?

For more than 50 years, the consumer finance industry in North Carolina has been regulated under the North Carolina Consumer  Finance Act.  Consumer finance companies have for many years lobbied the General Assembly to increase the legal limits on rates and fees on consumer loans, arguing that the market, through competition and consumer preferences, would adequately control the rates and fees.  In 2009, a House Committee on Unbanked and Underbanked Consumers conducted a study and issued a report on consumer finance and its regulation.  In 2010, a Joint Legislative Study Commission on the Modernization of North Carolina Banking Laws and the Consumer Finance Act also studied lending under the Consumer Finance Act and ultimately directed the NC Commissioner of Banks (then Joe Smith) to continue studying the matter and to issue a report and recommendations to the General Assembly during the 2011 session.  You can read the Commissioner's entire report here. The Commissioner acknowledged that the industry was "not thriving", but did not recommend any changes to the Consumer Finance Act.

The bill amending the Consumer Finance Act (also known as Senate Bill 489 and Session Law 2013-162) was sponsored by Daniel G. ClodfelterRick Gunn; E. S. (Buck) NewtonChad Barefoot; Tamara Barringer; Andrew C. Brock; Harry Brown; Bill Cook; Warren Daniel; Don Davis; Jim Davis; Thom Goolsby; Ralph Hise; Neal Hunt; Brent Jackson; Clark Jenkins; Earline W. Parmon; Louis Pate; Ronald J. Rabin; Shirley B. Randleman; Bob Rucho; Jeff Tarte; and  Tommy Tucker.

The amendments became effective on July 1, 2013.

For more information about lending under the Consumer Finance Act, see the website of the North Carolina Office of the Commissioner of Banks here.

[On a related note, I've previously written about the proposal to bring back "payday lending" to North Carolina with enhanced consumer protections. That bill did not move forward.] 

August 10, 2013

Ten Thousand Opportunities to Share

This blog was read for the 10,000th time yesterday.  Based on the analytic data I receive from the website host, most of those views came from search engine results or social media, which indicates to me that there is a genuine appetite for more accessible, relevant information about business law and banking law. 

I'm very honored that so many people have found this resource useful.  Thanks to those of you who take the time to share relevant content with your friends and colleagues through email and social media.  I appreciate your willingness to help me spread the word about the ways in which the law affects businesses in North Carolina and elsewhere. 

As always, your feedback is much appreciated.  Please let me know if there is a recent development or hot topic you'd like to see addressed here.



August 9, 2013

New Foreign Remittance Transfer Rules Become Effective Soon!

Consumers in the United States send billions of dollars overseas each year, according to the Consumer Financial Protection Bureau (CFPB).  The classic example is the immigrant or migrant worker who sends funds from the U.S. to support family members overseas.  The CFPB has issued rules under authority granted by the Dodd-Frank Act that are intended to protect consumers who send money electronically to foreign countries.  Financial institutions and "money transfer businesses" have only a matter of weeks to decide whether to continue to offer covered services, and if so, to establish processes and procedures to comply with the new rules.
Photo credit: / Foter / CC BY

The CFPB promulgated a "final" rule in February of 2012, but that rule has already been modified by another "final" rule, which is being referred to as the "2013 Final Rule."  (There have been a total of six rulemaking releases on this topic, with the latest following the 2013 Final Rule to make technical corrections.)  The 2013 Final Rule takes effect on October 28, 2013.

Under the 2013 Final Rule, a “remittance transfer” is an electronic transfer of money from a consumer in the United States to a person or business in a foreign country. It includes wire transfers, automated clearing house (ACH) transactions, and other methods.  The rule applies to most remittance transfers if they are more than $15.00 (USD).

New Disclosures.  The 2013 Final Rule generally requires companies to provide disclosures to a consumer before the consumer commits to pay for the remittance transfer. The disclosures must contain the following:
  • The exchange rate.
  • Fees and taxes collected by the originating company (e.g., the
o   The 2013 Final Rule makes optional the disclosure of taxes collected by the foreign country, in some cases. 
  •  Fees charged by the company's agents and intermediary institutions.
o   The 2013 Final Rule makes it optional, in certain circumstances, to disclose fees imposed by a recipient’s institution in the foreign country for transfers to the recipient’s account.
  • The (net) amount of money expected to be delivered abroad (though not necessarily accounting for certain fees charged to the recipient or foreign taxes).
  • A disclaimer that additional fees and foreign taxes may apply.
After the consumer has received these disclosures and consented to initiate the remittance transfer, the company must provide a receipt that repeats the above information.  In addition, the receipt must tell the consumer the date on which the money is expected to arrive in the recipient's account and how the consumer can report a problem with a transfer.

Companies must provide the disclosures in English. Sometimes companies must also provide the disclosures in other languages.

Substantive Consumer Rights.  In addition to rights to information, the 2013 Final Rule also generally requires that:
  • Consumers get 30 minutes to cancel a remittance transfer after they have consented to the transfer. Consumers get their money back if they cancel within this timeframe.
  • Companies must investigate if a consumer reports a problem with a remittance transfer. For certain errors, consumers can generally (i) get a refund or (ii) have the transfer sent again without additional charge if the funds did not arrive as promised.  (This might not apply under the 2013 Final Rule if the consumer provides an incorrect account number or misidentifies the recipient institution.)  Companies that provide remittance transfers are responsible for mistakes made by those who work for them.
The 2013 Final Rule also contains specific provisions applicable to scheduled transfers, as well as recurring transfers.

Exemption.  There is an exemption from the Rule for companies that consistently provide fewer than 100 remittance transfers each year.  Companies should note, however, that some providers may decide not to continue to offer remittance transfers in light of the burdens imposed by the Rule, and therefore those companies that do continue to offer remittance transfers may see an increase in volume in the coming year.  

The 2013 Final Rule, which is far more detailed than this brief summary, can be viewed in its entirety here

Bankers Take Note: Federal Rules Protecting Benefits from Garnishment Have Changed

The Treasury Department and other federal agencies have finalized rules designed to protect federal benefit payments that will require banks and other depository institutions to revised their procedures for dealing with garnishment orders, levies, and similar legal orders.
      The U.S Treasury and a $10 bill.          Photo by zieak / Foter 

The Treasury Department published an Interim Rule that went into effect over two years ago, so most financial institutions should already have procedures in place to prevent the freezing or taking of covered federal benefits from customers' accounts.  Only minor changes to existing procedures should be required in order for institutions to comply with the changes in the Final Rule.

Covered Orders.  The Final Rule is designed to protect federal benefit payments which are directly deposited into customers' accounts from being seized by third parties.  Although the Final Rule uses the term "garnishment order," the intent is more broad.  The Final Rule explains this better than the Interim Rule did by defining the term "garnishment order" to cover essentially any legal process that demands the payment of deposited funds belonging to another, including orders or levies issued by a state, a state agency, or a municipality, as well as "an order to freeze an account," which includes a restraining order.  The "garnishment order" may be issued by someone other than a court, including a clerk of a court, an attorney acting in his or her capacity as an officer of a court.   However, if the order comes from a child support agency, the funds are not protected and the depository institution must comply with the order.

Determination of Protected Funds.  The Final Rule covers only directly deposited funds that are coded to indicate they are protected.  These include social security payments, VA benefits, and certain federal pensions.  A depository institution must look back at the two prior months for direct deposits of covered federal benefits, and may not freeze or turn over those funds.   The institution is instructed under the Final Rule to use the account balance at the time the account review is performed, rather than at the start of business, as was the case under the Interim Rule.

Fee. An institution may charge a customary garnishment fee, if the deposit account agreement with the customer and state law permit it, but only if there are non-protected funds available.  A fee cannot be deducted from the protected funds.  Under the revisions in the Final Rule, if non-protected funds are not available at the time of the account review, but are subsequently deposited within five business days, the institution may collect its fee from the subsequently-deposited funds.

What Should Your Institution Do?

There are a few things that institutions should do immediately to address the changes reflected in the Final Rule:
  • Revise internal procedures to reflect the specific requirements described above and alert deposit operations personnel to the changes.
  • This is a good time to review deposit account agreements to ensure that garnishment fees are specifically permitted by the agreement.  If they are not, consider adding this to your list of changes for the next time you revise those agreements.  
  • Begin requiring all new deposit account customers to complete a short form (i) disclosing whether or not they receive any type of protected benefit income and (ii) requiring the accountholder to notify the institution if they begin receiving covered benefits after opening the account.  (This does not eliminate the need to check accounts for direct deposits with the appropriate coding, but serves as a belt-and-suspenders approach.)

 The final rule became effective June 28, 2013, so compliance is already mandatory.   

(You can read the entire Final Rule, which contains more detail than is discussed above, by clicking here for the HTML version or here for the PDF version.)

August 4, 2013

New Law Helps Protect Older Adults and Disabled Persons from Financial Exploitation

Older North Carolinians will soon have a new source of protection from financial exploitation, and financial institutions will soon have a new customer protection law to observe.  

Just a couple of weeks ago, Governor Pat McCrory signed into law a bipartisan bill designed to protect older adults and disabled adults from financial exploitation.  The actual title of the bill is "AN ACT TO INCREASE THE RECOGNITION, REPORTING, AND PROSECUTION OF THOSE WHO WOULD DEFRAUD OR FINANCIALLY EXPLOIT DISABLED OR OLDER ADULTS and to CONTINUE THE TASK FORCE ON FRAUD AGAINST OLDER ADULTS, as recommended by THE TASK FORCE ON FRAUD AGAINST OLDER ADULTS."  If ever there was a bill that could benefit from a short title, this is it!  Alas, the General Assembly did not include a short title.  

The legislation was supported by the North Carolina Bankers Association, the North Carolina Credit Union Association, and the North Carolina Attorney General's office.  It passed almost unanimously: 111 to 1 in the House and 47 to 0 in the Senate.  (The lone objector was Rep. Speciale, who told me that he was concerned about the regulatory burden created.)

Photo credit: Ed Yourdon / Foter
The Act gives financial institutions permission to solicit a list of trusted individuals from older and disabled adults to notify in case of suspected exploitation.  Institutions are not required to ask for a list, nor are customers required to provide any names. 
If a financial institution, or an officer or employee of a financial institution, has "reasonable cause to believe that a disabled adult or older adult [customer] is the victim or target of financial exploitation," they must report the information.  (The term "disabled adult" means anyone who is physically or mentally incapacitated as defined in N.C.G.S. 108A-101(d). The term "older adult" means anyone age 65 or older.)  Note the use of the word "target," which, although not defined, implies that financial institutions should be somewhat proactive in reporting before a customer is victimized. It is also interesting that the term "financial exploitation" is defined as "the illegal or improper use of a disabled adult's or older adult's financial resources for another's profit or pecuniary advantage."  The use of the term "improper" indicates that the acts in question need not necessarily be illegal.
A financial institution must report suspected exploitation to the following:
  •  Persons on the list provided by the customer, if such a list has been provided by the customer (unless a person on the list is suspected);
  • The appropriate local law enforcement agency; and
  • The appropriate county department of social services, if the customer is a disabled adult.
The report may be verbal, but I would suggest documenting it in writing. The report must include the name and address of the customer, the nature of the suspected exploitation, and any other relevant information.  The Act provides that no financial institution, officer, or employee who reports this sort of information in good faith can be held liable for doing so.

The Act enables a law enforcement agency or a social services department investigating alleged financial exploitation to seek a  subpoena for the financial records of the disabled or older adult.  A customer whose information is turned over pursuant to a subpoena of this type cannot be penalized or prosecuted for anything obtained by a law enforcement agency using this type of subpoena, with the exception of a joint account holder accused of exploiting the other account holder.
The agency is required to notify the customer when the subpoena is issued, unless there is a risk that a customer notice could hamper an investigation, in which case the judge may order that the customer not be notified until later.  In that event, the judge's order will also direct the financial institution not to disclose the existence of the subpoena or investigation to the customer. 

Action Items for Financial Institutions:  The law becomes effective December 1, 2013.  Financial institutions should begin updating their subpoena response policies to address the new law, decide whether they will solicit lists of trusted individuals from their older or disabled customers, and update privacy policies to comport with the new law and policy.

You can read the full text of the new law here.