TCF National Bank v. Bernanke

According to Bloomberg, Minnesota based TCF National Bank has filed an appeal with the U.S. 8th Circuit Court of Appeals asking the court to declare the Durbin Amendment unconstitutional.

TCF's suit is the latest in a series of attacks on the Dodd Frank bill's attempt to cap debit card fees. The Durbin Amendment has powerful enemies (Jamie Dimon, CEO of JP Morgan Chase has referred to the Durbin Amendment as price fixing.) Both the House and the Senate have versions of bills to delay implementation of the Durbin Amendment and reportedly Barney Frank had agreed to support HR 1081 which would delay implementation of the Durbin Amendment for two years pending more studies of its consequences.

The issue here will sound very familiar to those of us who have just suffered through the loan originator compensation rules. The Federal Reserve Rule on debit card interchange fees will cap the interchange fee per debit card transaction at 12 cents, regardless of the size of the transaction. As a result, small banks are likely to limit the size of debit card transactions or cut off access to free checking.

TCF had filed a suit against Fed Chair Ben Bernanke in an attempt to stop implementation of the bill, but on April 4, U.S. District Judge Lawrence Piersol ruled against TCF and denied the bank's motion to delay implementation of the rule.  At the same time, Piersol also denied the government's motion to dismiss the suit completely.

On Monday, May 2, TCF was back in court appealing Piersol's decision.  The TCF attorneys argued in their brief, "We are talking about the establishment of a confiscatory rate regime fully 15 years after banks began their debit businesses."  TCF is asking the court to rule the Durbin Amendment unconstitutional.

If TCF were to prevail in this case, the precedent would be amazing.  Banks are upset about the Durbin amendment because it caps the fees that they as private businesses can charge for debit cards.  If that is found to be unconstitutional, couldn't the same legal logic be applied to the Merkley amendment which caps loan origination fees at 3%?  If the government does not have the constitutional right to dictate what a private business can charge for its services, couldn't this impact also on the loan origination compensation rules forced on all of us by the Federal Reserve last month?  Maybe the FDIC does not have a constitutional right to set up underwriting standards, or to dictate what types of mortgage products individual businesses can access and sell. 

Most importantly, if one part of the massive Dodd Frank bill is ruled unconstitutional, the ripple effect might actually bring down the entire bill.  Although there are both House and Senate bills to repeal Dodd Frank, a ruling from a court striking down at least parts of the bill would impact greatly on the future of the law as a whole.

We will be watching to see what happens.

For related posts visit http://www.frontier2000.net/.

Big Brother vs. Private Enterprise

Yesterday, Kathleen Spitzer published an article in the Wall Street Journal that should be alarming to every business person in the U.S. I am attaching the link to the story here so that you can read it for yourself.
http://online.wsj.com/kGFNOn

The article focuses on a recent decision by Kathleen Sebelius and the Health and Human Services Department to terminate its dealings with the 83-year-old Howard Solomon, the CEO of Forest Laboratories. Last September, Forest Labs entered into a plea deal and settled with the government rather than choosing to litigate a series of government suits claiming that Forest's marketing to doctors amounted to fraud against Medicare and Medicaid. HHS accepted Forest's plea deal without even a hint that Solomon would be forced to resign as part of their continued relationship with the company. Only after the plea was accepted did Sebilius send her letter to Forest and to Solomon. Forest will be reinstated to do business with Medicare, Medicaid and the VA only if Solomon steps down as CEO, even though no allegations were ever made against Solomon personally. He was never charged with, nor accused of, any misconduct.

Sebelius is citing a provision in the Social Security Act which gives the government the right to bar executives of health companies from doing business with the U.S. government if the firms are found guilty of misconduct, even if the CEO has no knowledge of the misconduct.

Writes Spitzer, "HHS says its action is about holding corporate CEO's accountable, but it looks more like the Administration's latest bid to intimidate the health-care industry into doing its bidding on prices, regulation, and political support for Obamacare. This is the same agency that has threatened insurers with exclusion from new state run health exchanges if they raise their premiums more than Mrs. Sebilius wants, or if they spread what she deems to be "misinformation' about the President's health plan. Peter Pitts, a former FDA official states regarding the Forest Lab's incident that it, "reinforces everybody's worst fears--that this Administration won't do business with anybody that doesn't completely agree with policy initiatives. Not only will it refuse to even have this argument, it will actively destroy these people."

What Sebilius is doing to Forest Labs bodes ill for the entire business community--not just those companies working in health care. If HHS can get away with removing a CEO who has not been charged with or accused of any wrong doing under the grounds of "holding corporate America accountable" what may other agencies do? Dodd Frank gives the government unprecedented powers to liquidate companies that are deemed to be a threat to the overall financial system. And even if those companies sue in court, the courts cannot issue a cease and desist order to stop the Orderly Liquidation Authority from doing its work. In addition, the new Consumer Financial Protection Bureau will have unprecedented ability to regulate and audit companies involved in financial services and to call in the IRS to do an audit on any company it regulates whom the agency suspects might not be paying their income taxes. CFPB has power not only over the giant holding company mega banks, but also small independents with under $10 billion assets. That gives them huge authority over a major segment of private industry.

The punitive nature of HHS's actions against Forest Labs should serve as a warning to all of the rest of us. Basically, it means that the federal government is taking the hiring and firing of CEOs upon itself by blackmailing private businesses into replacing executives whom the federal government does not like with those they approve of. The CEO who speaks, writes or contributes politically against the Administration could find his own head and that of his company on the chopping block.

Forest Labs has promised for the present to stand beside Mr. Solomon, but they have also acknowledged that they may have to sue HHS and Solomon will have to step down as head of the company while they do so. And considering Solomon's advanced age, even if Forest Labs ultimately sues the government and prevails, Solomon may not live to see the victory or to be reinstated. No matter how this turns out, it is a loss for the company, for Solomon personally and for all of us who believe in private ownership of businesses.

For related posts visit www.frontier2000.net.

The Mortgage Call Reports are Now Available

As a licensed mortgage broker in Texas since 2000, I was accustomed to having to prepare a mortgage report for the state each year prior to February 28. Texas required that each mortgage broker prepare a report for himself and each loan officer who was licensed under him. Since Texas also required that we log incoming files, closed files, and withdrawn or denied files, we learned to set up our filing system to make year end report preparation easier. For example, for a few years Texas was tracking the number and dollar amount of Texas cash out loans closed. To make it easier to prepare these reports, we set up a log devoted especially to Texas cash out loans. At the end of the year, I knew that all I had to do was count those files and total the dollar amounts in order to submit my report to the state. Likewise, Texas tracked jumbo files, so I had a log devoted to jumbos so that I could prepare that part of the report easily.


Since I always knew that I had to do the report, and since we were organized in such a way to make preparation less painful, I got used to preparing the report each year during the first week of January when the forms became available on the Texas state mortgage lending website. I was very surprised, therefore, to see that this year no report was posted. I waited a couple of weeks to see if they were just behind in setting up the report, since I knew that the state regulators had their hands full with getting the state licensees converted to the NMLS system, but after a couple of weeks when the website still showed no links for our broker report, I called the state. "You don't have to do one this year," the young man working in broker compliance cheerfully informed me, "Isn't that great!"

Actually, it was kind of great. Of course I knew that NMLS would have its own reporting system, and that system is now in place. Instead of our former state reports that we as designated brokers produced, we will now be completing the Mortgage Call Reports. Mortgage Call Reports are to be prepared quarterly by each loan originator. The first report is available today and it is due by May 15. Some states are allowing a longer period of completion for the first report but I believe that Texas is requiring that everyone complete the form by May 15. Failure to complete a report and upload it in a timely manner is cause for license suspension. (The same was true in the case of our Texas annual reports.)

In addition to having the reports available, NMLS offers sample PDF files on line that we can look at to the see the type of information required. For a true broker, as I am, the report is not really all that bad. As in the case of the old state reports, we have to complete the dollar amount and number of each type of loan originated (conventional, FHA, VA or Rural). Reverse mortgages are in a separate listing. Home purchases and refinances are broken out separately to be listed by number of such loans originated and dollar amount of the loans.

One noticable difference between the state report and the NMLS call report is that the call report requires that we state the total dollar amount of the broker fees and lender fees on our transactions for the quarter. Listing our compensation seems to be to be an odd requirement for a federal report and it is going to require that we have our HUD settlement statements at hand while doing our computations. The report also asks us to list the number of applications in process at the beginning of the quarter, the number of approved applications withdrawn by applicants and the number of denied applications. This is a big departure from our state report which required information on closed loans only.

The facts I have presented above apply to mortgage brokers only. Bankers and companies which sell directly to Fannie Mae and Freddie Mac have to complete a more difficult detailed report.

Fortunately, (I guess) the first quarter has been slow, so compiling all of the information for the report should not be that difficult. And to assist us in preparation of our Call Report NMLS is scheduling workshops to teach us how to complete the forms. Information on the workshops has been posted to the NMLS website:

 

http://mortgage.nationwidelicensingsystem.org/news/events/Pages/MCRWorkshop.aspx. Workshop trainers include Tim Lange, Senior Director--Policy, State Regulatory Registry LLC, Tia Ryan, Manager--Operations State Regulatory Registry LLC, Rich Cortes--Principal Financial Examiner, Connecticut Department of Banking and Darin Domingue--Deputy Chief Examiner, Louisana Office of Financial Institutions.

 

The workshops are basically a moderated conference call and webinar. Participants will learn the following:

• Policies regarding who needs to submit the Call Report and when
• Directions on which portions of the Call Report need to be completed by which companies.
• Resources for how to complete the report, including field definitions.
• Overview of the options for uploading the Call Report data to NMLS
• Understanding how the data is used by regulators.

  

The cost to participate is $35.00, but considering that our licenses and ability to work hinge on getting this right, that is money well spent. Following are the dates for the workshops.

 

• Thursday, May 5, 2011 from 1:30 - 3:00 pm ET
• Tuesday, May 10, 2011 from 1:30 - 3:00 pm ET 

Participants must register to take the webinar, and participants need to create a log-in ID on the CSBS website. You cannot use your NMLS log in ID to register. The dial-in number and link to the webinar will be emailed to registrants 48 hours before the workshop, so anyone out there wanting to participate in Thursday's webinar needs to register ASAP.

 

I realize that there are some great discussion groups out there on various social networking sites about completing the Call Report. But it can never hurt to get facts and training straight from the regulators.

 

I would like to especially thank David Dulock and the team of Black Mann & Graham for providing me with the information for today's post.

  

Good luck to everyone.

  

For related posts, visit http://www.frontier2000.net/.