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Financial Institutions Committee Reports

March 3, 2005

    1. Next Scheduled Meeting of the Committee

    Next scheduled meeting of the Committee: Late March or early April.

    2. Council Approval

    None.

    3. Membership

    We have specifically asked members who attend our meetings to identify minority attorneys who might be interested in joining the Committee.

    4. Accomplishments Toward Committee Objectives

    The Committee has not met since its last report, so that there is nothing to report under this item.

    5. Meetings and Programs

    Committee meetings focus on legislative, regulatory and judicial developments that affect Michigan financial institutions. At our next meeting, we expect to have presentations by Dick Lavollette, the newly appointed Chief Deputy Commissioner of the Office of Financial and Insurance Services, Don Heikkinen, Senior Vice President of the Michigan Bankers Association, and Mike Marion and Mike Defors of the Michigan Credit Union League, regarding their organizations' legislative agendas and, in the case of OFIS, its regulatory and enforcement initiatives.

    6. Publications

    We regularly solicit and encourage committee members to submit articles for publication in the Business Law Journal.

    7. Legislative/Judicial/Administrative Developments

    The Michigan Bankers Association and OFIS are working on proposed amendments to the Michigan Banking Code. MBA's amendments will include:

    • Permitting a Michigan bank to operate under an assumed name.
    • Permitting the board of directors of a Michigan bank to act by written consent.

    The MBA will seek amendments to the Motor Vehicle Sales Finance Act that will (1) permit a dealer to act as the agent of a lender in making a direct loan to a car buyer, (2) permit a dealer to do "negative equity financing" (i.e. to make a direct loan to a buyer to the extent that the buyer's loan balance on his trade-in vehicle exceeds his equity in the trade-in, (3) eliminate a requirement that certain warnings to a vehicle buyer be printed in red on a motor vehicle installment sale contract (which will enable laser printing of contracts) and (4) eliminate the requirement that a motor vehicle sales finance company be licensed by the State of Michigan.

    The mortgage form statute (MCL 565.154) has been amended to eliminate any express or implied requirement that a mortgage describe the amount or terms of repayment of the obligation(s) that the mortgage secures (even though the last sentence of the amended section was garbled).

    The mortgage satisfaction statutes (MCL 564.41 and 565.44) have been amended to (1) decrease from 90 to 60 the number of days after a mortgage has been fully performed by which the mortgagee must discharge the mortgage and (2) increase the statutory damages for failure to do so from $100 to $1,000.

    The Revised Judicature Act has been amended to update the list of property that a debtor in bankruptcy may exempt from property of the estate (MCL 600.5451).

    A Michigan statute provides that if a person (1) bought, received or aided in the concealment of stolen, embezzled or converted property and (2) "knew" that the property was stolen, embezzled or converted and if this damaged another person, then the damaged person may recover treble damages from the person who bought, received or aided in the concealment of the property. MCLA 600.2919a. The Michigan Court of Appeals held that constructive knowledge is sufficient to satisfy the statute's knowledge requirement. Echelon Homes, L.L.C. v. Carter Lumber Company, 261 Mich App 424 (2004). Carter Lumber filed an application for leave to appeal to the Michigan Supreme Court. The Court has scheduled oral argument on whether to grant the application or take another action and has directed the parties to limit their presentation to the issue of whether constructive knowledge is sufficient to impose liability under the statute. 471 Mich 916. The Michigan Bankers Association has filed an amicus curiae brief in support of Carter Lumber's application. 2005 WL 121715.

December 4, 2004

    1. Budget Request for 2004-2005.

    $150 for refreshments at Committee meetings.

    2. Use of Budgeted Funds in 2003-2004.

    Refreshments at Committee meetings.

    3.Next Scheduled Meeting of the Committee

    Next scheduled meeting of the Committee: Not yet scheduled. Likely will be in January or February.

    4.Council Approval

    None required.

    5. Membership

    As a direct result of an E-mail to all members, the Committee added a minority member, who attended our most recent meeting.

    6. Accomplishments Toward Committee Objectives

    The Committee will continue to meet to discuss developments affecting financial institutions and to consider and recommend proposals for beneficial changes in the law.

    7. Meetings and Programs

    Most recent meeting was held on September 17 at State Bar headquarters in Lansing. Fourteen members attended.

    • Dick Lavolette of the Michigan Office of Financial and Insurance Services reported on current developments, including:
    • Approval of a de novo bank (Bank of Michigan in Farmington Hills).
    • Conversion of Lake Michigan Credit Union to a federal thrift.
    • Proposed credit union rules.
    • Senate Bill 1393, which would regulate money transmitters.
    • Bogus newspaper ads purportedly by established financial institutions.
    • Don Heikkinen of the Michigan Bankers Association reported on legislative developments and MBA's position on various bills. Examples:
    • Identity theft package.
    • Amendments to Uniform Securities Act.
    • Amendments to common trust fund statute.
    • Amendments to mortgage satisfaction statutes.
    • Mike Marion of the Michigan Credit Union League reported on the status of the credit union modernization legislation.
    • The Committee discussed a number of legislative, regulatory and judicial developments, including:
      • OCC Interpretive Letter on prepayment fees in Michigan.
      • OFIS Declaratory Ruling regarding debt cancellation contracts.
      • The illegality of so-called "negative equity" financing contracts under the Motor Vehicle Sales Finance Act and the risks assumed by a bank that purchases such contracts.
      • A Michigan Court of Appeals decision that effectively allows a debtor to shelter assets by transferring them to a revocable trust.
      • The advisability of amending Section 1105 of the Michigan Banking Code (MCLA 487.11105), which prohibits anyone other than an individual or a bank with trust powers from "acting as a fiduciary" in Michigan, other than "acting as an escrow agent." A clarifying amendment would be advisable because "fiduciary" could be construed to include any agent.
      • IRS has appealed the Crestmark case, in which the U.S. District Court for the Eastern District reversed the Bankruptcy Court and held that a notice of federal tax lien reasonably identifies the taxpayer only if the notice would be disclosed by a financing statement search that is obtained under the taxpayer's exact, legal name.

    Each attendee received a bound and tabbed set of material regarding agenda items and other developments.

    8. Publications

    The Committee published two articles in the Spring, 2004, issue of the Business Law Journal. We regularly solicit members for articles.

    9. Legislative/Judicial/Administrative Developments

    See Item 7 above.

    Report submitted by:

    James H. Breay

September 23, 2004

    1. Budget Request for 2004-2005.

    $100

    2. Use of Budgeted Funds in 2003-2004.

    Refreshments at Committee meetings.

    3.Next Scheduled Meeting of the Committee

    October 26, 2004

    4.Council Approval

    None.

    5. Membership

    The Committee has 66 individuals on its membership roster. All members of the Committee are regularly solicited for articles for publication in The Michigan Business Law Journal. Regarding new members and diversity, perhaps the Business Law Section is an effective vehicle for communicating to all Section members the availability of the various Section committees.

    6. Accomplishments Toward Committee Objectives

    We published two articles in the Spring, 2004, issue of The Michigan Business Law Journal. See item 8 below.

    7. Meetings and Programs

    At the next meeting, the Committee will discuss recent legislative, regulatory and judicial developments. In addition, Don Heikkinen, Senior Vice President and Staff Counsel for the Michigan Bankers Association, will report on the MBA's legislative agenda, and a representative of the Michigan Credit Union League will report on the League's efforts to modernize the Credit Union Act. Dick Lavolette of the Office of Financial and Insurance Services, will describe OFIS's legislative, judicial and regulatory initiatives.

    8. Publications

    Two articles were published in the Spring, 2004, issue of The Michigan Business Law Journal:

    • "How to Find Notices of State and Federal Tax Liens," by James H. Breay.
    • "A Primer on Subordination Agreements Under Michigan Law," by Andrew D. Hakken.

    We have solicited all of the Committee members for articles.

    9. Selected Legislative/Judicial/Administrative Developments

    • The Michigan Office of Financial and Insurance Services has issued a Declaration Ruling that the Michigan Insurance Code does not regulate the sale of debt cancellation contracts or debt suspension agreements in connection with extensions of credit by depository institutions.
    • The Office of the Comptroller of the Currency ("OCC"), which regulates national banks, has issued an Interpretive Letter stating that a national bank is not subject to Michigan's restrictions on charging a prepayment fee on a loan secured by a first mortgage on a single family dwelling (MCLA 438.31c(2)(c)), because (1) another Michigan statute permits a bank to "collect interest and charges on laws and extensions of credit as permitted by the laws of this state or of the United States to any person," (MCLA 487.14201(1)) (2) regulations of the federal Office of Thrift Supervision permit a federal savings association to impose prepayment fees without regard to state laws that limit those fees (12 CFR 560.2 (b)(5)) and (3) the National Bank Act permits a national bank to charge interest at the rate permitted to any lender by the laws of the state in which the national bank is located (12 USC 85).
    • The IRS has appealed from the decision of the U.S. District Court for the Eastern District of Michigan holding that a notice of a federal tax lien must give the taxpayer's exact, legal name or a variation of the name that would be disclosed by a lien search from the Secretary of State's office. Crestmark Bank and Crestmark Financial Corporation v United States of America, 302 BR 351 (ED Mich 2003).
    • In an unpublished opinion, the Michigan Court of Appeals has held that a debtor may shelter his or her assets from creditors by conveying the assets to a revocable trust, even though the debtor has the right to revoke the trust and claim title to the trust assets at any time and for any reason. Eastern Savings Bank v. Citizens Bank et al, 2003 WL 22495588 (Mich.App.). The Court of Appeals' decision appears to be contrary to MCLA 556.128 ("When the grantor in a conveyance reserves to himself an unqualified power of revocation, he is thereafter deemed still to be the absolute owner of the estate conveyed, so far as the rights of his creditors and purchasers are concerned." It also appears to conflict with In re Hertsberg Inter Vivos Trust, 457 Mich 430 (1998) (Where the settlor of a trust is also the beneficiary, "creditors can reach the assets of the trust."). The Michigan Supreme Court has denied a petition for leave to appeal.
    • The U.S. Department of Justice settled a claim against Old Kent Financial Corporation and Old Kent Bank, that Old Kent engaged in a pattern of discrimination on the basis of race by unlawfully avoiding and refusing to provide its business and residential lending products and services to Detroit's predominately African-American minority neighborhoods. This was the sixth redlining settlement obtained by the DOJ since 1992, but was the first DOJ settlement involving business lending. The bank agreed to open three new branches in the City of Detroit and to provide $3 million in loan subsidies over a three-year period. At least two-thirds of the loan subsidies must be directed at small business loans.

    Report submitted by: James H. Breay

May 22, 2004

    No report.

March 4, 2004

    1. Next Scheduled Meeting of the Committee

    Will be in May. Date to be determined

    2. Council Approval

    None.

    3. Membership

    All Committee members were solicited for articles for publication in the Business Law Journal

    4. Accomplishments Toward Committee Objectives

    Two articles by Committee members will be published in the next issue of the Business Law Journal. See Item 6 below.

    5. Meetings and Programs

    At the next meeting, the Committee will discuss recent legislative, regulatory and judicial developments. Don Heikkinen, Senior Vice President, Staff Counsel and lobbyist for the Michigan Bankers Association, will report on the MBA's legislative agenda, and a representative of the Office of Financial and Insurance Services will describe OFIS's current initiatives.

    6. Publications

    Articles to be published in the next issue of the Business Law Journal:

  • How to find state and federal tax liens: Where to search and what names to search.
  • Subordination agreements.
  • 7. Legislative/Judicial/Administrative Developments

    Check Clearing for the 21st Century Act (Check 21 Act): Facilitates electronic processing of checks by allowing a bank to truncate the original check and proceed with an electronic item that merely passes along the information that was contained in the original.

December 6, 2003

    1. Budget Request for 2003-2004.

    $100

    2. Use of Budgeted Funds in 2002-2003.

    Refreshments at Committee meetings.

    3. Next Scheduled Meeting of the Committee

    Next scheduled meeting of the Committee: January 13, 2004

    4. Council Approval

    None.

    5. Membership

    All Committee members were solicited for articles for publication in the financial institutions theme issue of the Business Law Journal

    6. Accomplishments Toward Committee Objectives

    Articles are being written for the financial institutions theme issue of the Business Law Journal. See Item 8 below.

    7. Meetings and Programs

    At the next meeting, the Committee will discuss recent legislative, regulatory and judicial developments. Don Heikkinen, Senior Vice President, Staff Counsel and lobbyist for the Michigan Bankers Association, will report on the MBA's legislative agenda, and Ron Jones, Deputy Commissioner of the Office of Financial and Insurance Services, will describe OFIS's initiatives under new Commissioner Watters.

    8. Publications

    Articles to be submitted for publication in the Business Law Journal:

  • Implications of Sarbanes Oxley for banks.
  • Finding state and federal tax liens: Where to search and what names to search.
  • A primer on subordination agreements in commercial finance transactions.
  • Theories of bank liability under the fair lending laws for actions of third parties in connection with residential mortgage loans.
  • New Michigan statute restricts payday loans.
  • 9. Legislative/Judicial/Administrative Developments

  • Michigan Supreme Court opinion in Dressel v. Ameribank: Bank's completing of blanks in FHLMC/FNMA mortgage loan documents and charging a "document preparation fee" was not the unauthorized practice of law.
  • Michigan mobile home lien legislation: New procedure converts a mobile home to real property.
  • New federal rule allows a national bank to issue debt cancellation contracts and preempts state laws that would consider such contracts to be insurance. Michigan Attorney General and Office of Financial and Insurance Services will be asked to rule that such contracts are not insurance and that therefore state banks may issue them.
  • New Michigan legislation will regulate payday loans.
  • Michigan Credit Union Act has been substantially revised.
  • OFIS has issued a set of FAQs on the Michigan Consumer Protection Act. NOTE: This Act is not limited to loans made by financial institutions, and it is not limited to consumer loans. The Act applies where any person takes a lien on a borrower's principal dwelling (even if it is not the "primary security" for the loan), to secure a loan or a home improvement installment contract, unless the loan is used to buy the dwelling or the transaction is a "reverse mortgage transaction" or a home equity line of credit. (But it does not apply to such a lien given by a guarantor of the loan.)
  • We expect legislation by year-end that will address "identity theft."
  • Report submitted by:
    James H. Breay

September 11, 2003

    The Committee will have its first meeting of the year in October. At that time, we will discuss and decide upon the agenda for the year.

    One primary focus will be a decision of the Bankruptcy Court for the Eastern District of Michigan that upheld the validity of a notice of a federal tax lien even though the name of the taxpayer used on the notice was different from the taxpayer's actual name and, as a result, the notice was not disclosed by a financing statement and tax lien search obtained from the office of the Michigan Secretary of State.

    A bank extended credit to the taxpayer in reliance upon the search and properly perfected a security interest in the taxpayer's assets by filing a financing statement with the Secretary of State. The Bankruptcy Court held that the federal tax lien had priority over the Bank's security interest. The case is on appeal to the District Court. Michigan Bankers Association has filed an amicus curie brief in support of the appeal, arguing that if the IRS does not use the taxpayer's actual name on a notice of federal tax lien, then the sufficiency of the name used should be determined by applying the rules of Article 9 of the Uniform Commercial Code.

    The Committee will also review the new provisions that the legislature has added to the Mobile Home Commission Act, effective July 14, 2003, in response to the decision of the United States Court of Appeals for the 6th Circuit in the Kroskie case. The new provisions provide a procedure under which a mobile home that has been affixed to land that is owned by the owner of the mobile home may be converted to real property, with the certificate of title to the mobile home being cancelled. The only way to obtain a lien on such a mobile home is by obtaining a mortgage.

    James H. Breay

May 17, 2003

    The Committee met on March 6 at the State Bar offices in Lansing. Fifteen members attended.

    Ron Jones, Acting Commissioner of OFIS, and Krystal Rourke and Dick LaVollette of OFIS, reported on several matters of interest to OFIS, including risks associated with certain overdraft protection programs, payday lending, the new Consumer Mortgage Protection Act, debt cancellation contracts, proposed amendments to the Credit Union Act and proposed Banking Code amendments (e.g. authorizing trust companies and LLC banks).

    Don Heikkinen, Senior Vice President of the Michigan Bankers Association, reported on a number of pending bills in the legislature that are of interest to the banking industry. Rodney Martin reported on the recent do-not-call list amendments to the Home Solicitation Sales Act and the recent amendments to the Federal Reserve Board's Regulation B. Norbert Kugele gave a presentation on HIPAA issues for banks.

    Dick West led a discussion of issues under the new Consumer Mortgage Protection Act, such as whether a mobile home is "real property" under the Act, whether upcharges are prohibited and whether the Act's restrictions on balloon loans are preempted by federal law. Dick also pointed out a number of issues that arise in connection with overdraft protection plans.

    Jim Breay discussed Michigan's new creditor-placed insurance statute, the issue of how to take a lien on a mobile home in light of the 6th Circuit's recent opinion, the recent holding of the Michigan Supreme Court that there is no purchase money mortgage priority in Michigan and the status of the document preparation fee litigation.

    James H. Breay, Chair

March 6, 2003

    The next meeting of the Financial Institutions Committee will be held on March 6, 2003, at the State Bar offices in Lansing, at 1:30 p.m. Following is the agenda for the meeting:

    Office of Financial and Insurance Services report—Ronald C. Jones, Jr., Chief Deputy Commissioner

    Michigan Bankers Association report—Donald Heikkinen, Senior Vice President and Staff Counsel

    Consumer Mortgage Protection Act

    New Chapter 16 of Insurance Code: Creditor—Placed Insurance Do-Not-Call List amendments to Home Solicitation Sales Act Gramm-Leach-Bliley preemption of state restrictions on marketing insurance HIPAA issues for banks

    Liens on manufactured homes: Perfected security interest v perfected mortgage lien. Who wins? Boyd v Chase Manhattan (6th Circuit). Is a manufactured home a fixture or real property?

    Graves v American Acceptance Corporation (Michigan Supreme Court). Is there a purchase money mortgage priority?

    Doc prep fee (unauthorized practice of law) case

    Special tools lien act and amendments to plastic molds act

    Scope of OCC's preemptive authority over national banks

    Litigation report of the Office of the General Counsel of the American Bankers Association

    Uniform laws report

    Other statutory, regulatory and judicial developments.

    James H. Breay

December 7, 2002

    The next meeting of the Financial Institutions Committee willbe in early January of the State Bar offices in Lansing. The agenda includesreports from the Office of Financial and Insurance Services regarding its currentlegislative and regulatory focuses and from the Michigan Bankers Associationregarding recent legislative developments and MBA's legislative agenda. We willalso hear reports and have discussions concerning a number of legislative, regulatoryand judicial developments, including Michigan "do not call list" legislation,preemption of the Detroit predatory lending ordinances, status of the documentpreparation fee/unauthorized practice of law case in the Michigan Supreme Court,the recent decision of the Michigan Court of Appeals holding that federal lawdoes not preempt Michigan's restrictions on prepayment fees on residential mortgageloans, the implications for banks of the new Michigan Special Tools Lien Act,the 1st Circuit Court of Appeals decision upholding the Comptroller of the Currency'sopinion as to Gramm-Leach-Bliley's preemption of Massachusetts statutes regardinga bank's ability to market insurance, HIPAA issues for banks and the status ofthe proposed amendments to UCC Articles 1, 3 and 4.Ñ

    James H. Breay

September 26, 2002

    No report.

May 18, 2002

    No report.

March 7, 2002

    No report.

December 8, 2001

    The Committee met on November 15 at the State Bar office in Lansing. Ron Jones and Peggy Bryson of the Office of Financial and Insurance Services (OFIS) discussed a number of areas on which the Office is focusing from either a regulatory or legislative standpoint. These include, for example, payday lending, credit union modernization legislation, trust companies and out-of-state limited purpose banks. The Committee also heard presentations on the Soldier's and Sailor's Civil Relief Act, the Uniformed Services Employment and Re-Employment Rights Act, the recently-enacted federal anti-laundering legislation, OFIS's acknowledgment that the Gramm-Leach-Bliley Act preempts certain provisions of the Michigan Insurance Code that restrict a bank's ability to cross-sell insurance to its loan and deposit customers and the status of the Michigan class actions to recover document preparation fees charged by banks. The committee will work on developing a legislative agenda and will seek to coordinate that effort with OFIS.

    James H. Breay

September 12, 2001

    No report.

May 19, 2001

    No report.

March 1, 2001

    No report.

December 2, 2000

    No report.

September 20, 2000

    The current focus of the Financial Institutions Committee is putting together a financial institutions theme issue of the Business Law Journal, which will be the next issue published. We have articles on the following subjects in process:
  • Changes made in the revised Banking Code
  • New powers authorized by the federal Gramm-Leach-Bliley Act
  • The privacy provisions of Gramm-Leach-Bliley
  • We are trying to generate one or two additional articles.

    I anticipate that the next meeting of the Committee will be held next month.

    James H. Breay

May 20, 2000

    No report.

March 4, 2000

    A revised Michigan Banking Code was enacted in December. A number of important changes are reflected in the new Code. The Code does not, however, grant to Michigan banks the new powers that were granted to national banks by the federal Gramm-Leach-Bliley Act, which was signed into law in November.

    The Committee will be reviewing the federal legislation for the purpose of determining amendments that should be made to the Michigan Banking Code in order to provide a "level playing field" for Michigan banks.

    The Committee is continuing to work on development of a theme issue for the Business Law Journal.

    James H. Breay

December 4, 1999

    The Committee's initial meeting of the year was held on October 26 at the offices of the Michigan Bankers Association. Seventeen members attended.

    Gary Mielock, Acting Commissioner of the Michigan Financial Institutions Bureau reported on (i) the status of the revision of the Michigan Banking Code, (ii) amendments to the FIB's rules under the Secondary Mortgage Act and the Credit Union Act, (iii) de novo banks that have been, or are in the process of being, chartered, (iv) the FIB's legislative agenda, (v) a declaratory ruling issued by the FIB that says that a motor vehicle dealer may include in an installment sale contract a loan to finance the buyer's deficiency on a trade-in vehicle and (vi) other matters.

    Don Heikkinen of the Michigan Bankers Association reported on legislation enacted, in process and proposed, including a bill intended to provide some protections against Y2K liability. He indicated that revised UCC Article 9 should be enacted next year.

    Lloyd Fell reported on the status of the various class actions brought against financial institutions in the state and federal courts in West Michigan that challenge the legality of document preparation fees and the manner in which lenders have disclosed those fees.

    The Committee discussed other matters, including the Uniform Electronic Transactions Act, limitations in the Insurance Code on the disclosure and use of customer information where an individual is a dual employee of a financial institution and its affiliated insurance agency and the new federal banking legislation that repeals the Glass-Steagall Act and permits the combining of banking, securities underwriting and insurance underwriting and sales.

    The Committee discussed and is working on development of a theme issue for the Business Law Journal.

    James H. Breay

     

 

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