November 15, 2014

Yet Another Reason to Handle Consumer Electronic Consents Correctly

From time to time, clients balk when I describe the components of an effective consumer consent to an electronic transaction.  They say "I've seen lots of other websites, and they don't require this." 

They are correct, in part.  Most websites do not do what I advise my clients to do, because most websites have deficient disclosures and consent language.  Most of the time, these do not result in anything catastrophic.  But that does not make it legal...or smart. 

One aspect of consumer electronic transactions that people question most often is affirmative consent.  They ask whether it is truly necessary to provide detailed disclosures and obtain affirmative consent from consumers when entering into agreements through electronic means.   Affirmative consent means that the consumer expressly agrees to the terms, or "opts in."  An example of affirmative consent is the following:
"By clicking the button labelled 'Accept' below, you agree to the terms and conditions of this Agreement and acknowledge that you have read and understand the disclosures provided above."
Most businesses would generally prefer negative consent, also referred to as "constructive" consent or "opt out."   An example of negative consent is the following:
"By using this website, you are agreeing to these Terms and Conditions."
Obviously, negative consent is easier for businesses to handle than getting affirmative consent.  The question, however, is whether a negative consent is effective for all purposes.

The (federal) E-SIGN Act and the (state) Uniform Electronic Transaction Act require that if any other statute, regulation, or rule requires that a consumer be given a document or disclosure in writing, then in order to for a consumer to effectively agree to receive it in electronic format, the consumer must affirmatively consent after having been given very specific disclosures.  In some circumstances, it may be difficult to identify a specific law requiring a written disclosure in connection with the contemplated transaction.  You may think, "we are not under any legal obligation to give any notices or disclosures to these customers after this transaction."  However, there are a large number of disclosure requirements contained within the millions of pages of law affecting consumer transactions.  Just because you can't think of one off the top of your head doesn't mean none exist.  For this reason, I almost always advise my clients to obtain affirmative consent from consumers for online agreements.

In this post, I'm going to give you a real-world example of a situation in which obtaining a proper consumer electronic consent could save a lot of money:

ABC Corp. (fictional) sells products and services to consumers in North Carolina through its website and the telephone.  It has collected information from tens of thousands of consumers over the past few years, and stores that information on its database on its own server.  Included in the information are the consumers' credit card numbers (so that regular customers will not have to provide all of their information with every order).  The credit card numbers are not encrypted on the database.  ABC Corp. becomes aware of an incident of unauthorized access to its database.  Customer information likely has been accessed, and the available information indicates that the person who accessed the information has nefarious intent. 

Under North Carolina law, ABC Corp. is obligated to notify each consumer of the data security breach.  The North Carolina Identity Theft Protection Act says that ABC Corp. can notify the consumers via email only if the consumer's consent has been properly obtained in accordance with the E-SIGN Act.  If ABC Corp. has records of consumers' email addresses, but has not obtained the proper consent to provide subsequent legally-mandated notices by email, ABC Corp. cannot satisfy its obligations by providing the notice by email.  Instead, the Identity Theft Protection Act requires that the notice be provided in hard copy (if mailing addresses are available).  In this situation, because ABC Corp. has failed to obtain consumer consent in the proper way at the outset, the cost of responding to a subsequent data security breach will be tens of thousands of dollars more as a result printing and postage costs alone. 

This is just one example of the many ways in which handling consumer consent carefully at the start of an electronic relationship with a consumer can pay off for a business later.

November 7, 2014

Public Service Announcement: "Combatting Financial Exploitation: A New Tool"

Regular readers of this blog know that preventing the financial exploitation of older or disabled folks is something that I am passionate about.  I've written and spoken on the topic frequently over the past couple of years.

This week, I had the privilege to join a distinguished panel of experts for a series of training webinars on combatting financial exploitation of the elderly and disabled.  The webinar was coordinated by the NC Administrative Office of the Courts (specifically, the inimitable Lori Cole), and included representatives of the NC Department of Justice (the ever-risible Raj Premakumar), UNC School of Government (the erudite Aimee Wall), NC Bankers Association (the staid Jan Dillon), and NC Department of Health and Human Services (the passionate triumverate of Nancy Warren, Renae Minor and LeShana Baldwin).  More than 300 participants registered, most of whom were lawyers, judges, clerks of court, financial professionals, and social services officials from all across North Carolina.

Here are a few quotes from participants who contacted us after the webinar to profide feedback:

"Thank you so much for all the great information I received with the combatting financial exploitation webinar class. This will help me to stay up to date with the new change." - an Assistant Clerk of Court

 "Thank you for an informative CLE!" - a County Attorney

 "Thanks for the program and the info!" - a County Attorney

 "The webinar today was a very good introduction." - an Assistant Clerk of Court

 "It was a very good program." - a Social Services Attorney

"The information was very helpful." - an Assistant Clerk of Court
For those who were unable to join us, a copy of the materials from the presentation is available here.

A video of the presentation will be available soon, and I will update this post to include it.

If you encounter circumstances that lead you to suspect the financial exploitation of an older or disabled person, whether in your professional life or your personal life, please report your suspicions appropriately. 


November 6, 2014

A Message to New North Carolina Lawyers

The following article was published by the NC Bar Association in The Advocate earlier this month.  If you know any newly-licensed lawyers in North Carolina, I encourage you to share it with them:

Welcome to the YLD
by Matt Cordell, Division Director

Welcome to the Young Lawyers Division, which is affectionately known as the “YLD”! If you are younger than 36 or in your first three years in the practice of law in North Carolina (regardless of your age), you have been inducted automatically into the YLD effective upon joining the North Carolina Bar Association. Make no mistake—despite the fact that admission did not require much effort on your part, YLD membership is something from which you should derive great pride. (Second-career lawyers tend to be eager to call themselves members of the Young Lawyers Division—a feeling you will understand one day if you do not already—but this is not the sort of pride to which I refer.) You have joined the ranks of a dynamic, transformative organization that will ask for your talent and enthusiasm and, in return, give you meaningful experiences, skills, and relationships. The YLD has a tremendous legacy of developing effective young lawyers and serving our communities in powerful ways. In this special issue of The Advocate, we hope to show you how the YLD makes a difference in the world and can make a difference in your career.

The Young Lawyers Division Yields Lasting Dividends
The YLD is the largest division of the NCBA, with 6,500 members. It is also widely acknowledged that the YLD is the most active service arm of the NCBA. It is the source of many of the NCBA’s service initiatives, and has provided an enthusiastic workforce to carry out virtually all of the Association’s service projects—service to our members, our neighbors, and our communities. The YLD’s heritage of service dates back to its founding in 1954 and is the first goal expressed in its mission statement:
To promote the general welfare of the public, advance the professional education and welfare of young lawyers, involve young lawyers in the activities of the NCBA, promote fellowship among all members of the bar, and advance the standards of both the legal profession and the administration of justice. 

On our strong backs rest the responsibility and opportunity to carry out the vital work of the profession for the public good. The YLD has risen to the challenge in many ways, and most of its 21 committees are oriented toward service. From Murphy to Manteo, YLD members are effecting positive change across our state.
The YLD is where the future leaders of the NCBA, the State, and the nation gain valuable leadership experience. This is evident from a brief summary of the accomplishments of the prior YLD chairs:
  • Six prior YLD chairs have become presidents of this Association.
  • One became president of the ABA.
  • Nine became NCBA Section chairs.
  • Seven chaired NCBA committees.
  • Two became president of the State Bar.
  • Two more took the helm of Legal Aid.
  • A significant number went on to hold public office.
To underscore the point, note that these accomplishments reflect only the Division Chairperson—one person each year. Scores of other YLD officers and committee chairs honed leadership skills in the YLD that enabled them to accomplish great things later in life.

The YLD is Important for Your Legal Development
Legal publications and the editorial pages of newspapers have recently made common knowledge something we in the profession have known for some time: many law schools do not fully prepare students for the practice of law. As a new lawyer, you need practical experience and opportunities to develop leadership and other skills. These can be acquired in countless ways through the YLD’s many committees. You can watch more experienced lawyers counsel clients, and practice doing so yourself, through Wills for Heroes clinics or Project Grace clinics. You can develop your public speaking skills through any number of committees and events. You also can sharpen your writing by joining for the Newsletter Committee. Take advantage of opportunities to hone a host of additional skills—advocacy, event planning, speaking, or drafting—while making a difference in your community. The YLD is where newly-minted lawyers acquire the skills and experience to lead their communities, organizations, the legal profession, and society.  
This brings me to another significant benefit of YLD involvement: relationships. I have made many great friends through the YLD, and continue to encounter exceptional people each time I participate in a YLD event. If you have not discovered it already, you will learn that relationships matter tremendously in your professional life, just as they do in your personal life. The YLD is a great way to meet the very best young lawyers in the state—young lawyers who are motivated, committed, and service-oriented…and fun to be around. Basically, if you want to make friends with the leaders of the future, it is easy to do. Sign up for a YLD committee or service project. You will be surrounding yourself with some of the best young minds and hearts in this great state. But, as LeVar Burton used to say on Reading Rainbow, “you don’t have to take my word for it.” Give it a try. If you don’t make friends with lots of other bright, friendly, committed young lawyers, we’ll refund your membership fee. (Your first year of NCBA dues have already been waived!)  
Matt Cordell practices in the areas of banking, corporate, and privacy law with Ward and Smith, P.A., and serves as a YLD Division Director. This bar year marks his eighth year as an active member of the YLD. He looks forward to meeting each of you at a YLD event soon.

October 19, 2014

Bank Holding Companies, It Is Time To Update Your Tax Sharing Agreements

It is time to update tax allocation agreements between bank holding companies and affiliated entities, say the federal regulators.  According to guidance issued this summer, examiners will be looking for updated tax allocation agreements beginning this fall. 
photo by Phillip via on flickr/Foter
Bank holding companies usually own all of the outstanding stock of their depository institutions, which means that the holding companies and their banks are deemed to be "affiliated groups" within the meaning of Section 1504 of the Internal Revenue Code. Accordingly, they often choose to file consolidated federal income tax returns, and in some states, they are required to file consolidated state income tax returns. To address the allocation of the tax liability and the timing of contributions, bank holding companies and their banks are required* to enter into tax allocation agreements.

In 1998, the federal financial institution regulatory agencies jointly issued an Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure ("Interagency Statement") to provide guidance to insured depository institutions and their holding companies and other affiliates regarding the payment of taxes on a consolidated basis. 

In 2014, an addendum to the Interagency Statement became effective.  The addendum was intended to clarify the agencies' existing positions and to add new requirements in light of the FDIC's recent disputes with holding companies of failed banks for which it acted as receiver.  According to the amended guidance, a tax allocation agreement should explicitly address the following issues:
  • Calculation of Tax Allocation.  A subsidiary depository institution must compute its income taxes (both current and deferred) on a separate entity basis, regardless of whether the actual returns will be consolidated.  This is done both for purposes of preparing regulatory reports and to ensure the insured depository institution does not pay more than its own share of the tax liability. Certain adjustments that arise in a consolidated return, such as the application of graduated tax rates, may be made to the separate entity calculation as long as they are done consistently and fairly.
  • Current Taxes Only.  A bank should not pay its deferred tax liabilities or to its holding company, because the deferred tax account is not a tax liability required to be paid in the current reporting period. The regulators frown on this.
  • Timing of Payments to the Holding Company.  Tax payments from a bank to a holding company should never exceed the amount the bank's current tax expense calculated on a separate entity basis, nor should they be made before the bank would have been obligated to pay as a separate entity. The regulators consider any advance payments to be extensions of credit from the bank to the holding company (which are restricted by the Federal Reserve Act and regulations).
  • Tax Refunds from the Holding Company.  A bank incurring a loss for tax purposes should record a current income tax benefit and receive a refund--within a reasonable timeframe--from its holding company in an amount no less than the amount the bank would have been entitled to receive as a separate entity.  If the refund is not passed along to the bank within a reasonable period, regulators may consider it either an extension of credit or a dividend.  If, however, on a separate entity basis, the bank would not be entitled to a current refund because it has no carryback benefits available, its holding company can still use the bank's tax loss to reduce the consolidated group's current tax liability. In this situation, the holding company may reimburse the bank for the use of the tax loss.
  • Agency Relationship.  Because of recent litigation by the FDIC-R over tax assets, regulators emphasize that one of the most important provisions in a tax allocation agreement is the clear statement of an agency relationship between the bank and holding company.  The agreement should clearly state that a holding company that receives a tax refund from a taxing authority holds the funds as an agent for the subsidiary(ies). 
  • Board Approval.  All tax sharing agreements should be approved by the boards of directors of each holding company and insured depository institution in the consolidated group.
The agencies' addendum states that the agencies expect tax sharing agreements to be updated by October 31, 2014 (although it is not a true deadline).  Therefore, bank holding companies should update their tax sharing agreements and obtain board approvals promptly, if they have not already done so.

October 8, 2014

To Register Your Arbitration Clauses with AAA or Not to Register? That Is the Question!

art by Todd Berman / flickr
Does your organization have consumer contracts that include an arbitration clause?  Does the clause reference the American Arbitration Association?

You may already know that the American Arbitration Association ("AAA") recently announced that it would require registration of all consumer arbitration clauses incorporating its rules, apparently in response to pressure from the Consumer Financial Protection Bureau, which recently conducted a study of consumer arbitration clauses.  The requirement became effective in September.

Consumer Contracts

The AAA's new registration requirement applies to any arbitration clause in a consumer contract that invokes the AAA’s Consumer Rules or refers to the AAA. The rule change does not affect commercial contracts. As always, the distinction between consumer and commercial is a test of fact, regardless of the language of the document. If a consumer signs a document that purports to be an agreement for use with commercial customers and references the commercial arbitration rules, the consumer may nonetheless invoke the AAA Consumer Rules when bringing a claim.

Public Information

Registered arbitration provisions become publicly-accessible information. According to the AAA, “[b]y accessing the Registry, parties will be able to search businesses by name to determine if the AAA has reviewed their consumer arbitration clause and will administer their consumer arbitrations.” Moreover, according to the AAA, “the Registry will include online access to the arbitration clause reviewed by the AAA and may also include other documents related to the arbitration clause.” 

The Registry is available on the AAA website, and a password is not required to search it and view clauses that have been submitted.
As of the date of this post, only a small number of arbitration provisions appear to be registered, and some clauses are not visible.  It is unclear to me whether this is simply because the website is new and still being populated.

Effect of Registration

Rule 12 of the amended Consumer Rules states that beginning on September 1st, a business that “provides for or intends to provide for” AAA administration in a consumer contract “should notify the AAA of the existence of such a consumer contract or of its intention to do so at least 30 days before the planned effective date of the contract” and provide a copy of the arbitration clause to the AAA.  Rule 12 further states that the AAA will review the clause for material compliance with the Due Process Protocol and the amended Consumer Rules (including consumer fee limits). The Rule and the AAA website call for registration of existing clauses rather than just newly-adopted clauses.  (See, for example, Rule 55(viii).) The AAA may determine that additional, related provisions or documents are necessary in order to properly evaluate the clause, and may request them and post them on the Registry.

For arbitration clauses submitted to the AAA during 2014, the registration fee is $650, which will maintain the clause on the Registry through 2015. An annual fee of $500 is imposed thereafter.

Each arbitration provision used will require a separate registration and registration fee. The AAA's Rule states that "[a]ny different arbitration agreements submitted by the same business or its subsidiaries must be submitted for review and are subject to the current review fee." Therefore, it might make sense to use only one clause, or some other limited number of standard clauses, throughout your organization.

Effect of Not Registering

If a business has not registered its consumer clause prior to the filing of a consumer case, the AAA will require that the business register its clause at that time, and will "conduct an expedited review.” The expedited review costs an additional $250. The primary risk associated with not registering the clause in advance is the chance that the AAA will determine that it does not comply with the AAA Due Process Protocols or fee limitations, and therefore decline to arbitrate.

Updating Requirement

If an arbitration provision is updated or revised, it will require a subsequent registration with the AAA.
Rule 55 purports to require re-registration and an additional $500 fee for "[a]ny subsequent changes, additions, deletions, or amendments." Despite the strict language of the Rule, it is unclear to me whether the AAA would take the position that a minor, non-substantive change would trigger the re-registration requirement; one would hope that a non-substantive change would not require an additional filing and $500 fee.

Conclusions and Additional Considerations

Based upon the new Rules and the analysis above, you might conclude that it is most cost-effective, and administratively useful, to standardize an arbitration clause (or a limited number of clauses) across the organization, whether or not you intend to register the clause in advance of a dispute. In making these determinations, you may want to consider the risk of the AAA rejecting the clause, the frequency with which your organization has historically been subject to arbitration demands, the benefits and burdens of standardizing an arbitration clause(s) across your organization, and (for heavily-regulated entities like banks) the risk of criticism for failing to register in advance, among other factors.

An Important Decision from the North Carolina Surpreme Court

image by Silver Season
In February, I wrote about an important case for lenders in North Carolina. The North Carolina Supreme Court has issued a highly-anticipated opinion that is important for lenders in North Carolina to understand.

Under North Carolina law, real estate can be held by married couples in a form known as "tenancy by the entireties," which means that the property cannot be reached by creditors of only one spouse. Therefore, lenders often obtain guarantees from the spouses of borrowers (or the spouses of individuals who own borrowing entities) to ensure that real estate assets (that might be necessary to satisfy a debt if the borrower or guarantor does not pay as agreed) will be availalbe as a source of repayment. Without spousal guarantees, lenders would often be unable to rely upon many real estate assets when underwriting a loan. Accordingly, the ability to obtain a guaranty of a spouse sometimes means the difference between a lender being able to make a loan and being forced to decline a loan application. 

The Equal Credit Opportunity Act ("ECOA") and its implementing regulation, Regulation B ("Reg B") were intended to prohibit gender-based discrimination in lending. Its original intent was to prevent married women who were qualified borrowers from being refused credit because they did not have their husbands' approval. (This was apparently a problem in the early 1970s!) Over time, the ECOA was amended and interpreted to generally prohibit, among other things, requiring a spousal guarantee absent a showing both that the borrowing spouse is not independently creditworthy enough for the loan and that the guaranteeing or supporting spouse was not selected only on the basis of his or her status as a spouse. Put simply, if an individual seeks a loan from a lender, the lender cannot automatically require that the borrower have his or her spouse co-sign or guarantee the loan. The ECOA provides for the assertion of a claim against the lender if the ECOA is violated.

In August of last year, a panel of the North Carolina Court of Appeals had opined that a violation of the ECOA not only gave a spouse the right to assert a claim against the lender, it also allowed the spouse to escape the guaranty entirely. (RL REGI North Carolina, LLC v. Lighthouse Cove, LLC, COA12–1279.)

The case at issue involved a lending arrangement where most of the assets were held by the owner of the borrowing entity, while the borrowing entity itself had comparatively few assets. The lender required not only the borrower's owner to provide a guarantee, but also the owner's spouse. The borrower defaulted. A forbearance agreement was entered into in which both the owner and the spouse acknowledged the validity of the debt and waived any and all claims against the lender. The borrower defaulted again later. The lender sought to recover against both the owner and the spouse pursuant to the guarantees. The spouse asserted the ECOA as a defense and both the trial court and the Court of Appeals agreed that the guarantee was unenforceable against the spouse.

The North Carolina Supreme Court then agreed to hear the appeal of the creditor. Because of the harmful precedent that would be established if the Court of Appeals' ruling was upheld, one of my colleagues and I filed an amicus curiae (friend of the court) brief on behalf of the North Carolina Bankers Association in support of the creditor, asking the Court to reverse the Court of Appeals' decision. We argued both the creditor's position (i.e., that the ECOA cannot be asserted as a defense and that, in any regard, the borrowers had waived any such claim or defense) and policy arguments supporting the creditor's position. In an unanimous opinion authored by Justice Newby, the Supreme Court reversed the Court of Appeals. The Court did not address the affirmative defense issue, instead finding that the spouse-guarantor waived any potential defense by signing an agreement containing a broad waiver clause. The Supreme Court thereby left for another day the issue of whether the ECOA can be asserted as a defense to a guarantee. You can read the full opinion here.

As a result of this decision, lenders are well-advised to seek broad waivers (such as those covering "any and all claims, defenses, or causes of action") in forbearance agreements and loan modification agreements.


September 15, 2014

Panel Discussion: Data Security, Breach Response, and Emergency Management

I was honored to be asked by The Infusion Group to participate in a panel discussion on business security issues with some top thought leaders in North Carolina for the Innovate Work Summit Digital Series. Topics included data security, risk management, breach response, and emergency management. I enjoyed hearing the insights of these three smart, accomplished people. Please feel free to view the video on YouTube and share it with others who might be interested.


September 9, 2014

Social Media: Maximizing the Rewards while Minimizing the Risks

(This article was published in the Carolina Banker magazine by the North Carolina Bankers Association in the Fall 2014 issue.)

Social Media for Financial Institutions: Maximizing the Rewards while Minimizing the Risks

By now almost everyone knows that social media has tremendous potential for businesses of all kinds to connect with important constituent groups.  The average American spends 37 minutes per day on social media.  Facebook alone has more than 1.2 billion users, and a quarter of them log in more than five times per day.  Twitter has twice as many users as the United States has citizens.  In addition to marketing products and services to customers and prospects, banks now use social media to obtain feedback and market intelligence, recruit and engage employees, and enhance shareholder relationships.  These attractive opportunities do not come without risk; fortunately, however, these can be mitigated by an effective social media compliance and risk management program. 

Regulatory Attention

A few months ago, the Federal Financial Institutions Examination Council ("FFIEC"), which includes representatives from federal and state regulators, issued guidance for banks regarding the legal, operational and reputational risks associated with social media.  Soon, examiners will likely expect banks to have written risk assessments and social media policies and procedures.

The FFIEC guidance addressed many — but not all — of the outstanding banking law questions about social media.  Most of the regulations the guidance discusses involves the nature and placement of consumer disclosures, recordkeeping, and other straightforward issues.  The guidance also raised more complex issues, however, such as the risk of disparate impact, an anti-discrimination legal theory favored by the Consumer Financial Protection Bureau.  Not all of the outstanding questions were addressed by the guidance, however, so good, practical judgment will be needed to apply existing regulations in a new environment.  For example, customer privacy issues can arise in social media that require banks to respond to customer communications differently than other businesses might.

Importantly, the guidance states that even banks that do not have any official social media accounts should still consider the risks posed by social media, document the risk assessment, and adopt any policy needed to address identified risks.  Risks faced by banks that do not have an official social media account include reputational risks of negative comments and complaints by customers, as well as risks posed by employees' use of social media.  The regulators have made clear that a bank may be held responsible for an employee's social media use if it appears the employee is acting on behalf of the bank and the bank has not taken adequate steps to address the risk.  (How certain are you that none of your bank's employees are talking about the bank's products and services on their own social media accounts?)

Reputation Management

A widespread concerns among bankers about social media is the potentially damaging effects of publicly-aired customer complaints.  This is a real risk, but it is important to note that it is present whether or not a bank has a social media presence.  Disgruntled customers can — and do — air grievances on social media and customer review websites whether or not you have a Facebook page or Twitter profile.  If your bank has a presence on social media, however, you may have a better opportunity to identify and address those grievances. 

Both legal and practical considerations in determining whether, and how, to respond to a public complaint.  Well-crafted social media policies and procedures, coupled with a well-trained and savvy team, can effectively handle most public complaints, and may achieve net-positive outcomes.  When the commenter can be identified, the recommended approach is usually to simply ask the customer to remove the offending post.  If a commenter refuses to remove a false, misleading, or abusive comment voluntarily, you may resort to dealing with platform provider (e.g., Facebook, Twitter, Google, Yelp, etc.).  Each platform has terms and conditions that establish unique criteria for removing posts.  Understanding these criteria can help you draft a request to the platform that is more likely to result in the removal of an offending comment.  A letter sent from a knowledgeable lawyer on behalf of the bank is often helpful.


Social media presents opportunities for others to impersonate or "spoof" the bank.  However, this can happen whether or not a bank is active on social media, and in fact, by being active in social media, a bank can actually reduce the likelihood and effectiveness of these nefarious efforts.  Fortunately, most social media platforms are generally quick to shut down fraudulent accounts.


Social media and promotional contests seem to go together like peanut butter and jelly.  They can be useful tools to encourage social sharing of your bank's content.  As with any promotional contest, various state and federal laws must be observed, and liability and reputational risks must be mitigated.  Also, some social media platforms restrict certain types of promotions.  It may be worthwhile to consult a knowledgeable lawyer before beginning any contest or drawing.

Developing a Policy, Procedures, and Implementation Team

The size and complexity of a social media program should be commensurate with the degree of the bank's involvement in social media.  For example, a bank that uses only one platform (e.g. Facebook) should have a more focused program.  A bank using several media (e.g., Facebook, LinkedIn, Twitter, Yelp, Google +, and YouTube) should have more comprehensive procedures.

The FFIEC advises that a social media program should be designed with participation from specialists in compliance, technology, information security, legal issues, human resources, and marketing.  Ideally, a team will be small, with individuals whose expertise spans more than one of these categories.  After a program is crafted, it can be implemented by a smaller team or an individual, with support from specialists as necessary. 

A recent survey revealed that banks in the southeastern United States  have the lowest rates of social media participation in the nation.  In some other regions of the country, banks are more than three times as likely to have a social media presence.  Given the size of the potential audiences and the high level of user engagement, it seems likely that more banks in our region will implement or expand social media strategies soon.  Though all risks cannot be eliminated, a well-crafted plan can manage the risks while maximizing the rewards. 

September 7, 2014

Moving to the Triangle

The time has come.  For several years, I've worked with clients from across the state and beyond, travelling all over North Carolina.  New Bern has been a wonderful place to call home.  My family loves the small-town, coastal lifestyle.  In recent years, however, I have found myself travelling more and more, which has generally resulted in less family time.  We have concluded that it is time to move to the Triangle so that I can be closer to more of my clients and generally spend a little less time travelling.  Ward and Smith, P.A. has been very supportive of this decision.
We will be living in Raleigh by the end of this month.  I look forward to getting involved in the community and making some new friends.  We also look forward to seeing many of our Triangle-area friends on a more regular basis.
I intend to be back in New Bern regularly to see clients and friends, just as I already spend time the other cities in which Ward and Smith has offices.

I will maintain a presence in the New Bern office, but my primary office address will be:

Ward and Smith, P.A.
5430 Wade Park Boulevard
Wade II, Suite 400
(Post Office Box 33009, Zip 27636-3009)
Raleigh, NC 27607
P: 919.277.9100
F: 919.277.9177 

The office is located directly across Edwards Mill Road from the PNC Arena.

August 16, 2014

Boards of Directors and Information Security Risks

Directors should take an active role in managing data security risks rather than leaving it up to management and IT staff, according to recent remarks by SEC Commissioner Luis Aguilar.

Commissioner Aguilar recently delivered a speech at the New York Stock Exchange in which he emphasized that cybersecurity has become a “top concern” and pleaded with corporate directors to “take seriously their obligation to make sure that companies are appropriately addressing those risks.”

The Commissioner reported that U.S. companies experienced a 42% increase from 2011 to 2012 in the number of successful cyber-attacks. He also pointed out a number of recent high-profile incidents, including the following:
  • The October 2013 cyber-attack on the software company Adobe in which data from more than 38 million customer accounts was breached;
  • The December 2013 cyber-attack on Target, in which the payment card data of approximately 40 million Target customers and the personal data of up to 70 million Target customers was breached;
  • The January 2014 cyber-attack on Snapchat, a mobile messaging service, in which a reported 4.6 million user names and phone numbers were leaked;
  • The multiple cyber-attacks against several large U.S. banks, in which their public websites have been shut down for hours at a time; and
  • The numerous cyber-attacks on securities exchanges. (According to a 2012 global survey of 46 securities exchanges, 53% reported experiencing a cyber-attack in the previous year.)
Commissioner Aguilar said that cybersecurity has become a "top concern" of American companies over a relatively short period of time. That's good news. But, according to the Commissioner, directors themselves should be involved in addressing cybersecurity risks.

The essence of Commissioner Aguilar's comments related to the board’s role in corporate governance and overseeing risk management. He pointed out that since the financial crisis, there has been an increased focus on how boards address risk management. While acknowledging that primary responsibility for risk management has historically belonged to management, he emphasized that boards are responsible for ensuring that the corporation has established appropriate risk management programs and for overseeing how management implements those programs. Not surprisingly, he mentioned the SEC's 2009 rule change which calls for the public disclosure of the board's role in risk management (usually in a proxy statement).

In addition to the SEC's rule changes, proxy advisory firms appear to be applying pressure to boards to focus on data security risks. A prominent proxy advisory firm has recommended that shareholders vote against the election of most of Target's directors because of their alleged “failure…to ensure appropriate management of [the] risks” resulting in Target’s December 2013 breach.

The result of these influences is encouraging: Boards have begun to assume greater responsibility for overseeing the risk management efforts of their companies, according to evidence cited by the Commissioner. For example, according to a survey of 2013 proxy statements filed by S&P 200 companies, the full boards have almost universally assumed responsibility for the risk oversight of their respective companies.

The Commissioner concluded by expressing his view that "board oversight of cyber-risk management is critical to ensuring that companies are taking adequate steps to prevent, and prepare for, the harms that can result from such attacks. There is no substitution for proper preparation, deliberation, and engagement on cybersecurity issues."

You can read the Commissioner's full remarks here.

(c) Matt Cordell 2013

July 30, 2014

Is Bank Regulatory Relief Gaining Momentum?

Banks have been pleading with Congress for regulatory relief for as long as I can recall.  (For example, before the ink on the Dodd-Frank Act was dry, bankers were warning of the harmful effects of the cumulative regulatory burdens attributable to the Act.)  It appears bankers' advocacy efforts may now be closer to achieving results.
The House Financial Services Committee approved three regulatory reform bills this week.
  • The "Community Bank Mortgage Servicing Asset Capital Requirements Study Act of 2014," H.R. 4042, would delay the implementation of the Basel III rules that relate to capital requirements for mortgage servicing assets until a study is completed. 
  • The the "Access to Affordable Mortgages Act of 2014,'' H.R. 5148, would amend the Truth in Lending Act to exempt from certain appraisal standards certain "high-risk" mortgages of $250,000 or less if the loan stays on the balance sheet of the lender for three years. The act also would exempt certain individuals from penalties for failure to make reports regarding certain appraisers.
  • The "Regulation D Study Act," H.R. 3240, would require the Government Accountability Office (GAO) to study the impact of the Fed’s reserve requirements on depository institutions and consumers.
Other bills introduced in Congress would provide further relief if they can get the momentum to pass:
  • The "Portfolio Lending and Mortgage Access Act," H.R. 2673,  would amend the Truth in Lending Act by deeming any residential mortgage to be a "qualified mortgage" for as long as it remains on a bank's balance sheet.
  • The "Community Institution Mortgage Relief Act of 2014," H.R. 4521, would expand the CFPB’s small servicers exception to include servicers of 20,000 mortgage loans or fewer.  It would also exclude loans secured by a first lien on a dwelling that are held by creditors with assets of $10 billion or less.
  • The "Financial Regulatory Clarity Act of 2014," H.R. 4466, would require the federal banking agencies to consider whether any new regulation proposed is inconsistent with, or duplicative of, existing regulations. 
Whether any of these bills will make it to the Senate, much less the President's desk, is difficult to predict.

July 21, 2014

New N.C. Statute Gives Lenders More Options When Developers Default

Lenders now have a bit more to think about when making a loan to a developer of a planned community. 
A few days ago, the General Assembly enacted, and the Governor signed into law, important amendments to the Planned Community Act regarding the transfer of the declarant's rights and the liability of the declarant's successor in interest.  The legislation is House Bill 330 / Session Law 2014-57 (titled "An Act Amending the North Carolina Planned Community Act regarding the Transfer of Special Declarant Rights"). 
By way of reminder, a "declarant" is almost always a developer of a planned community or condominium who creates restrictions on the use of the property which are described in a "declaration."  That developer has the opportunity to reserve certain rights to itself as the "declarant." Although there is no requirement that a developer reserve declarant rights for itself, it is common to do so, and it would be very unusual for a planned community or condominium developer to not to name itself the declarant.  (For more information on declarants, see this article by my law partner Sam Franck.)
So, what happens when a lender must forclose on a developer who is a declarant of a planned community?  Does the lender become the declarant?
The new Act says (basically) that unless the deed of trust provides otherwise, a creditor who acquires property through foreclosure acquires all "special declarant rights" related to the property, if the creditor files in the county records an "instrument" that "requests" those rights.  (The deed of trust is not required to state that special declarant rights will be transferred, but the judgment or instrument that conveys the titled must.)  The definition of "special declarant rights" in GS 47F-1-102(28) is as follows:   
"Special declarant rights" means rights reserved for the benefit of a declarant including, without limitation, any right (i) to complete improvements indicated on plats and plans filed with the declaration; (ii) to exercise any development right; (iii) to maintain sales offices, management offices, signs advertising the planned community, and models; (iv) to use easements through the common elements for the purpose of making improvements within the planned community or within real estate which may be added to the planned community; (v) to make the planned community part of a larger planned community or group of planned communities; (vi) to make the planned community subject to a master association; or (vii) to appoint or remove any officer or executive board member of the association or any master association during any period of declarant control."
As I read the Act, the creditor is free to assume some--but not all--of the special declarant rights, if it wishes.  Furthermore, the Act says that a creditor can state in the recorded instrument that it intends only to hold special declarant rights to transfer them to a third party, in which case the creditor cannot exercise any special declarant rights, but will avoid the liabilities or obligations of the declarant. 
The Act answers a number of questions but will require creditors to give some consideration when the deed of trust is drafted and when the creditor decides to exercise its rights by foreclosure, deed on lieu, or in a bankruptcy proceeding.

The upshot is that lenders now have more control as to which, if any, of the declarant's rights they want to inherit when a developer goes under.
You can read the full Act for yourself here.

Img content: runner310            

July 4, 2014

New Tax Changes in North Carolina

July means the start of a new fiscal year for the State of North Carolina, which means some new changes to the tax code become effective.  Below are brief descriptions of some of the key changes:

Elimination of Back to School (August) Sales Tax Holiday.

N.C. General Statutes Section 105-164.13C provided an exemption for certain items of tangible personal property sold between the first Friday in August and the following Sunday.  It included clothing, footwear, and school supplies of $100 or less per item; school instructional materials of $300 or less per item; sports and recreation equipment of $50 or less per item, computers of $3,500 or less per item; and computer supplies of $250 or less per item will be exempt.  Clothing accessories, jewelry, cosmetics, protective equipment, wallets, furniture, items used in a trade or business, and rentals were never covered by the exemption to begin with.  The elimination of this exemption is expected to yield $14.7 million during  fiscal year 2014-2015.  
Elimination of Energy Star Products Tax Holiday
N.C.G.S. 105-164.13D provided an exemption from sales and use tax from the first Friday in November through the following Sunday for Energy Star products.  An "Energy Star qualified product" is "a product that meets the energy efficient guidelines set by the [EPA] and the United States Department of Energy and is authorized to carry the Energy Star label."  Items purchased for use in a trade or business and rentals were not covered by the exemption.  This sales tax holiday was enacted in 2008, and eliminating it is expected to bring $1.6 million in FY14-15 . 
Elimination of Sales Tax Exemption for Bakery Thrift Stores

A bakery thrift store is a retail outlet of a bakery that sells at wholesale over 90% of the items it makes and sells at the retail outlet day-old bread returned to it by retailers.  The exemption from sales tax was enacted in 2007, and its repeal is expected to result in $3.9 million in revenue in FY14-15.
Cap on Sales Tax Refund for Nonprofit Entities

Nonprofits will begin paying sales tax on purchases that exceed $666 million in a fiscal year.   In other words, the exemption is now capped at $45 million annually.   
Income Requirement for Farm Equipment Emption 

Farm equipment will continue to be exempt from sales tax, but only if the farm has a certificate showing annual gross income from farming operations of $10,000.   More than 40,000 farm exemption certificates are currently outstanding.  North Carolina has more than 52,000 farms, according to the 2007 USDA Census of Agriculture.  There are a number of issues that remain to be addressed in connection with this change.  The change in this exemption is expected to result in $16.5 million in revenue for FY14-15. 
Sales Tax on Energy

State sales tax will now be due on electricity and piped natural gas at the combined general rate.  The combined general rate is the State's general rate of tax plus the sum of the rates of the local sales taxes authorized for all counties. The current combined general rate is 7%.  A number of other taxes on electricy and natural gas are repealed in connection with this change, including the following:
  • Franchise taxes on electric power, water, and public sewerage companies (G.S. 105-116). 
  • Distribution of electric power company franchise tax to cities (G.S. 105-116.1). 
  • The 3% sales tax discount for municipalities that sell electricity (G.S. 105-164.21A). 
  • Payments in lieu of franchise taxes required of electric cities and joint power agencies (G.S. 159B-27(b) through (e)).


July 2, 2014

Opposition to Operation Choke Point Grows

image by skambalu
Opposition to Operation Choke Point continues to mount.
"Operation Choke Point" is an ongoing program of the U.S. Department of Justice under which it investigates banks' relationships with payment processors, so-called "payday lenders," and other companies believed to be at higher risk for violations of law. Bankers report being pressured to terminate relationships with these businesses even if no malfeasance is identified. Operation Choke Point is controversial because it has the potential to penalize banks and other lawful businesses simply because an agency of the executive branch disfavors certain types of businesses. Industries that have reportedly been targeted by Operation Choke Point include the following:
  • Ammunition Sales
  • Coin Dealers
  • Credit Repair Services
  • Dating Services
  • Firearms Sales
  • Fireworks Sales
  • Government Grants
  • Home-Based Charities
  • Life-Time Guarantees
  • Life-Time Memberships
  • Money Transfer Networks
  • Online Gambling
  • Payday Loans
  • Pharmaceutical Sales
  • Ponzi Schemes
  • Pornography
  • Multi-Level Marketing
  • Surveillance Equipment
  • Telemarketing
  • Tobacco Sales
  • Travel Clubs

A bill has recently been introduced in Congress to prevent federal banking regulators from exerting similar pressure. The bill would prohibit bank regulators from using their "safety and soundness" authority over banks to discourage banks from serving customers engaged in legal activities. Banks would benefit from a safe harbor with respect to business customers that are licensed, registered as a money services business, or have obtained a reasoned legal opinion confirming the legality of the business.

The bill was introduced by Representative Blaine Luetkemeyer (R-MO). Luetkemeyer explained that the legislation "would ensure that existing laws are interpreted as intended, overzealous and inappropriate use of regulatory and enforcement tools is curbed, and financial institutions have the security and ability to return to the business of offering products and services to a variety of industries including ammunition sales, fireworks sales and pharmaceutical sales." He went on to write that "[i]n an effort to drive legally-operating, licensed and regulated companies out of business, federal banking regulators in cahoots with the Department of Justice are placing so much regulatory pressure on financial institutions that certain businesses not viewed favorably by the Attorney General and the Administration are eventually choked-off from the financial services they need to survive. That notion goes against the very nature of our free market system. It is time to stop these backdoor attempts by government bureaucrats to blackmail and threaten businesses simply because they morally object to entire sectors of our economy.”

The bill was referred to the House Committee on Financial Services last week. 

At least one group has taken the litigation route. An association of consumer lending companies (Community Financial Services Association of America) filed a lawsuit against the federal financial regulators in early June, claiming that through Operation Choke Point, the FDIC, the Fed, and the OCC have informally pressured banks to cut off consumer lenders' access to banking services, which "exceeds the agencies’ statutory authority." You can read the Complaint here.

image material by via foter
It remains to be seen whether legislation or litigation will force the Operation Choke Point to "tap out."

July 1, 2014

We can FINALLY remove those pesky IRS Circular 230 disclosures from our email messages!

If you've received an email from an attorney, accountant, or tax preparer in the past several years, it almost certainly included some barely-comprehensible fine print about tax advice, often with the caption "IRS Circular 230 Notice." The number of trees killed as a direct result of the extra pages of printed email messages resulting from these notices probably numbers in the millions.

Section 330 of title 31 of the U.S. Code authorizes the Secretary of the Treasury to regulate professionals who practice before the Treasury Department, such as attorneys and accountants. The Secretary published regulations governing practice before the IRS in 31 CFR part 10 and reprinted the regulations as "Treasury Department Circular No. 230."   Circular 230 says that regulated professionals must meet certain standards of conduct with respect to written tax advice or face suspension or disbarment.   In layman's terms, the IRS said "if you provide tax advice to your clients that we don't like, we will take away your livelihood."  The warning was an over-reaction a reaction to the tax avoidance schemes of the 1990s.  The language of Circular 230 was so broad, and the fear of the IRS's wrath so widespread, that regulated professionals started putting a disclaimer on every single email message--automatically.  Everything from friendly jokes, to emails scheduling appointments, to actual tax advice bore the disclaimer that "this does not constitute tax advice upon which you can rely."

Mercifully, those days are now behind us.  New rules issued by the IRS in June include this statement: “Treasury and the IRS expect that these amendments will eliminate the use of a Circular 230 disclaimer in e-mail and other writings.”


June 29, 2014

Crowdfunding Law Made Simple

photo by Twose
One of the topics I am often asked about these days, and one of the subjects that even smart, well-informed people seem to be most confused about, is "crowdfunding."  It seems appropriate, therefore, to offer a basic, high-level summary of the topic here on the N.C. Business & Banking Law Blog.   

Is crowdfunding just a bunch of hype?

Crowdfunding is a Really Big Deal.  Entrepreneurs and owners of businesses with growth potential have historically found it somewhat difficult to access the money that individuals and institutions have accumulated and want to invest without going through traditional gatekeepers (i.e., Wall Street).  This is largely because federal and state securities laws have limited their ability to raise investment capital from anyone other than well-to-do people in their immediate sphere of influence (in SEC-speak, "nonpublic offerings" to "accredited investors").  Most inventors and entrepreneurs do not have enough high net worth friends and business associates to raise large amounts of capital.  The securities rules were designed to protect investors that Congress or the SEC deemed vulnerable, but they had the unfortunate consequence of hampering the efficient flow of investment dollars.  However, recent changes to securities laws (including crowdfunding) are making it much less burdensome to borrow money or raise equity capital.   Crowdfunding will make it possible to raise investment money from virtually anyone.

What does the JOBS Act of 2012 have to do with crowdfunding?

The federal JOBS Act (Jumpstart Our Business Startups Act), enacted on April 5, 2012, required the SEC to write regulations to implement many of its various provisions.  More than two years later, the SEC has not yet finalized rules to implement Title III of the JOBS Act, known as the "crowdfunding" section of the law.  The JOBS Act also called for a new Rule 506(c) to allow a similar method of raising capital, but with important distinctions, which are covered below.

So what exactly is crowdfunding?

Many (perhaps most) of the media and many others who are unfamiliar with the JOBS Act have been referring to multiple methods of soliciting and raising investment as "crowdfunding."  This is often incorrect.  People are using the term to describe a number of different capital-raising methods, only two of which are actually crowdfunding.

Most people are familiar with websites like and that allow inventors and entrepreneurs to raise money for new products and services.   These sites existed before the JOBS Act and are unaffected by securities law because no equity or debt is being offered or sold.   People who contribute to campaigns on these websites usually have some personal affinity for the cause or an expectation of receiving the product or service if a sufficient amount of funds are pledged to enable the project to be completed.  Basically, this is not crowdfunding. The important thing to know about these websites, however, is that they demonstrate how popular actual crowdfunding sites are are likely to be, and they are probably the models on which crowdfunding sites will be designed.

Crowdfunding is offering and selling securities to the crowd, by which I mean both accredited and non-accredited investors.  (Accredited investors are essentially those who have $1,000,000 in assets, excluding equity in their primary residences, or $200,000 in annual individual income. Congress and the SEC think that accredited investors are less vulnerable to fraud.)   The crowdfunding rules the SEC proposed in July 2013 (in response to the JOBS Act mandate, but which are not yet final nor effective) will allow people to sell up to $10,000 of debt or equity to each individual as long as they do not raise more than one million dollars in a 12-month period. The SEC's leadership and staff are widely believed to be philosophically opposed to the idea of crowdfunding, and they seem to be attempting (i) to delay finalizing rules and (ii) to make the process difficult.  (The SEC believes that crowdfunding will result in widespread fraud and that the victims will be among society's most vulnerable.)

What is a Rule 506(c) public/private placement?

Another new legal avenue for fundraising that is not actually "crowdfunding" involves the process allowed by new SEC Rule 506(c), which--as mentioned above--the SEC was required to create by the JOBS Act.  Rule 506(c) allows businesses to offer securities to the general public and raise unlimited investment with relatively low compliance costs, provided they sell only to "accredited investors" who have been reasonably verified as such.  Rule 506(c) is very attractive because of the ability to publicly advertise the offering using social media, investing websites, newspapers, magazines, television, radio, and--someday soon--crowdfunding websites.  In the months since Rule 506(c) became effective in October of 2013, billions have already been raised using its provisions. 

What about single-state crowdfunding?

Largely due to frustration at the SEC's foot-dragging, some states have enacted crowdfunding laws to permit limited offerings to investors in certain states without complying with the SEC's more burdensome rules.

A bill (the NC JOBS Act, or House Bill 680) was introduced in the North Carolina House of Representatives in April 2013 to permit intra-state crowdfunding.  After a couple of rounds of amendments, it was passed by the House in June 2013 by a 103-to-1 margin.  The bill now sits in the Senate Commerce Committee, which along with the Senate Finance Committee, must approve it before the full Senate can vote.

The NC JOBS Act would create an exemption from North Carolina's securities registration requirements for offers and sales of securities (also known as the Blue Sky Law) that meet certain criteria.   The requirements of the current version of the proposed crowdfunding provisions include the following:

  • The offering must meet the requirements of the federal exemption for intrastate offerings under Section 3(a)(11) of the Securities Act of 1933.
  • The issuing entity must be organized under the laws of North Carolina (no out-of-state entities).
  • All purchasers must be residents of North Carolina.
  • No more than one million dollars can be raised in 12 months, unless prospective investors have been given audited financial statements, in which case the limit is two million dollars.
  • No more than two thousand dollars can be received from a non-accredited investor.
  • A notice filing with the Securities Division of the Secretary of State's office.
  • An offering circular must be provided to prospective investors and to the Securities Division.
  • Risk disclosures and certifications.
  • Website registration requirements.
  • A bank must act as escrow agent for investment funds collected during the offering period.
  • Officers and directors of the issuing entity cannot receive commissions on sales of securities unless they register themselves as a "dealer" or "salesman."
  • Quarterly reporting to investors.
As you can see, the North Carolina crowdfunding proposal is more restrictive than the SEC's proposal. 

(To better understand the interplay between federal securities laws and state securities laws, see my article here, which was first published in 2008 by, but note that it is now out-of-date.)

More information is available.

This has been a brief summary of some key points relating to crowdfunding, but there is much more that I have not covered in this article.  I have done a little bit of speaking, writing, and tweeting about crowdfunding, but my law partner Jim Verdonik knows more about it than anyone I know.  He has written about it on his blog, Entrepreneur Intersection, and in the Triangle Business Journal.  If you're interested in hearing more about crowdfunding, or have a group that might be interested in having me or Jim speak, please let me know.

June 25, 2014

It's Getting Easier to Borrow from a Bank

It's getting easier to borrow money from a bank, according to reports from the Office of the Comptroller of the Currency, the North Carolina Bankers Association, and the American Bankers Association

Banks are easing loan terms to stay competitive as creditworthy borrowers are becoming more common. Here are seven ways bankers are loosening credit criteria, according to the cognoscenti:
 - Longer Amortization: Banks are extending the term of loans to as much as 25 years, thereby lowering borrowers’ monthly payments.  This increases the lender's exposure to risk and ties up capital.

 - Limited Guarantees: Some banks are the amount subject to a personal guarantee.

 - Extending the Duration of Fixed-Rate Loans: Some banks are extending the term of fixed-rate loans, especially on commercial equipment. (Of course, longer terms at today's low rates could spell trouble for banks if the Fed raises rates quickly, as noted below.)

 - Higher Leverage Ratios: Lenders are tolerating higher loan-to-value ratios, in some cases up to 80%.

 - Lower Debt-Service Coverage Ratios: Some banks are reducing the debt-service coverage ratio, though regulators would like to see them raised.  (One bank lost out on the opportunity to make a seven-figure commercial loan because another lender was willing to waive all debt service coverage requirements.)  The OCC reported today that the average total-debt-to-EBITDA ratio rose to 4.7, the highest since 2007. The OCC believes that covenants should be imposed on companies in most industries that limit this ratio to six times EBITDA.

 - Relaxed Collateral Requirements: Some lenders are lowering collateral requirements on commercial real estate loans by lowering the required cap rate.

 - Fee Waivers: Banks are reportedly more willing to waive or lower fees.

The relaxation in lending standards prompted the Office of the Comptroller of Currency to issue a report today warning of an "erosion in underwriting standards."  The OCC is concerned that banks have taken on more risk than is prudent.  Key conclusions in the report include the following:
  • Competition for lending opportunities is intensifying.
  • Lenders are loosening underwriting standards, particularly in indirect auto, leveraged lending, and other commercial loans.
  • Banks that extend loan maturities could face significant problems depending on the severity and timing of interest rate moves by the Federal Reserve Board. 
The Wall Street Journal reported today that "so-called covenant-lite leveraged loans, which have fewer protections for lenders, totaled $258 billion in 2013, nearly equal to the total amount issued between 1997 and 2012." 

Conclusion:  This is good news for borrowers, but may signal an escalation in already-intense competition among lenders and further regulatory scrutiny for banks.

Sources: American Banker, NC Bankers Association, WSJ, and OCC.