In a long-awaited decision in Bartram v. U.S. Bank, the Florida Supreme Court ruled that each default on a monthly mortgage payment creates a new cause of action and resets the statute of limitations for bringing a foreclosure action. The ruling is a complete victory for mortgage banks, providing clarity on the application of the foreclosure statute of limitations and shutting down a potential defense that had been validated by trial courts and one appellate court in Florida.
Yesterday, the Independent Community Bankers of America (ICBA) sued the National Credit Union Administration (NCUA) to block a rule change that would expand credit unions’ ability to make commercial loans. The new rule—known as the “member business loan rule”—allows credit unions to acquire loans from other lenders to businesses that are not credit union members. According to the ICBA, this rule violates the Federal Credit Union Act, which restricts credit unions from making business loans equal to more than 1.75 times their net worth. The ICBA brought suit to prevent the NCUA from implementing the rule, arguing that the rule “exacerbates the unfair competitive harm that tax-exempt credit unions are able to inflict on community banks, which do not benefit from the tax advantages enjoyed by credit unions.”
A few months ago, I wrote about banks’ recent attempts to recoup losses from retailers following data breaches. Now, a bank has filed suit against a payday lender for negligence stemming from a failure to safeguard financial information from checks cashed by the payday lender. USAA filed the lawsuit against PLS Financial Services and The Payday Loan Store in Chicago federal court on August 5.
Banks and financial services companies are sued by non-practicing entities (NPEs), also called patent trolls, more than any industry outside of the software and consumer product sectors. In fact, about 6% of NPE patent litigation is against the financial services sector, according to a recent report. And NPE cases are not limited to large companies—as many as 60% of the defendants targeted by NPEs are companies with less than $100 million in revenue. Thus, community banks must be prepared to deal with demand letters and lawsuits from NPEs.
I’m proud to have represented Northeast Bank in securing a judgment to confirm the validity of a $5 million commercial loan in a Harris County, Texas court. The case began last year, when the Borrower claimed that its $5.6 million note was barred by the statute of limitations and need not be repaid. Northeast Bank filed a declaratory judgment lawsuit, asking the court in Houston to reject the Borrower’s arguments and confirm the validity of the loan. In a complete victory for Northeast Bank, the court confirmed the validity of the loan, rejected the Borrower’s claims, and awarded the bank its attorneys’ fees.
Under the National Bank Act, national banks are subject only to the usury laws of the state in which they are headquartered, even when they are making loans to customers located in another state. Thus, national banks can effectively avoid stricter usury laws of some states by setting up their headquarters in a state with friendlier usury laws (for example, Delaware or South Dakota). State banks and nonbank entities, however, must comply with the local usury laws of the states where they make loans. But what happens when a state bank or nonbank entity acquires a loan that was originated by a national bank? Recent court rulings suggest that state banks and nonbank entities are not protected by the National Bank Act even when they acquire loans from national banks.
Data breaches have become an all-too-common occurrence, with headlines announcing a new data breach nearly every week. While the impact of a data breach on consumers has been widely reported, the media often overlooks the impact on banks. When a data breach occurs, banks are on the hook for the costs of reissuing cards, notifying customers, and monitoring accounts for fraud. By some estimates, that costs around $8 per customer card. In large-scale data breaches such as the Target and Home Depot data breaches, that means hundreds of millions or even billions of dollars in bank losses. Instead of absorbing all of these costs, banks have started to fight back to hold retailers responsible for losses caused by a retailer’s lax data security.