Category Archives:Uncategorized

PHH v. CFPB: Who won?

You gotta love a case where each party can claim victory!

The US Court of Appeals for the DC Circuit found that the CFPB’s structure was constitutionally valid even though the President could only fire the director for cause rather than “at will.”  So, consumer advocates can be pleased that the agency is continuing in existence, and the director is theoretically independent.  However, they are now stuck with a Trump appointee (when he gets around to it) that will carry over into the next presidential term.  Meanwhile, Mulvaney (interim director) is busy dismantling rules and procedures.  Even the tagline for the CFPB press releases has been changed to add the fact that the CFPB helps “markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations….”

PHH has to be pleased that the appellate court upheld part of the prior decision, which concluded that CFPB director Cordray’s decision-making violated due process.  The case involved a potential violation of the anti-kickback provisions of RESPA.  Cordray retroactively repealed HUD rulings—without going through the Administrative Procedures Act.  Plus, he basically nixed the idea of a statute of limitations for the alleged violation.  The original opinion on this point is a great primer on US Supreme Court decisions on overreach and violation of due process by agencies.  So, industry wins big on this issue.

Now, it will be intriguing to see whether this latter issue (violation of due process) can translate into an effective defense in other cases where regulators “write” rules through the examination and enforcement process!


Karen Neeley
Kennedy Sutherland LLP


Hurricane Harvey - Disaster FAQs


The banking regulators urge bankers to be flexible and provide reasonable accommodations to their borrowers who are adversely affected by natural disasters.  The following are some questions that arise from this.

  1. Many consumers have their income temporarily disrupted by storms. We would like to defer payments.  Any legal or regulatory issues?
  2. From a Reg Z perspective, a payment deferral should be a modification at most. It would not trigger new disclosures.  It is explicitly not a refinancing.  See sec. 1026.20(a)(4).  From a Texas Credit Code perspective, you would not be able to charge a deferral fee on a loan under chapter 342 (installment loan with rate over10%).  Of course, you probably wouldn’t want to do so anyway!

Send the customer a letter or use the bank’s website with the customer logged in to advise them of the deferral and when the payments should re-start.

  1. So, can we explicitly defer payments on home equity loans?
  2. Risky. The Texas Constitution requires home equity loans to be scheduled to be repaid in “substantially equal successive periodic installments.”  I can argue that so long as the original schedule met that criteria, it is valid.  Certainly, the bank can modify a home equity loan.  The safest way to do that is to make accommodations (e.g. lower rate and decrease payments) and extend the term.  So long as the payment covers accrued interest and “some amount of principal,” the loan should be valid.
  3. We expect customers to need home improvement loans quickly in order to start repairs. Can we waive any of the regulatory requirements?
  4. Yes, if you and the customer jump through the right hoops! The Texas Constitution requires both a waiting period of 5 days between application and closing and then a 3 day right of rescission.  Those can be waived, however, if the owner acknowledges in writing that the work and material are necessary to complete immediate repairs to conditions on the homestead that materially affect the health or safety of the owner or person residing in the homestead.

The Reg Z three day right of rescission can be waived for a bona fide personal financial emergency.  The consumer must give the creditor a dated written statement that describes the emergency, specifically waives the ROR, and is signed by all of the consumer entitled to rescind.


  1. Some consumers may wish to apply for a home equity loan so that they can not only fix the damages but also pull out a little cash. Any issues with that?
  2. Sadly, yes. First, remember that the 80% loan to value ratio is measured at closing.  If the homestead has been damaged, its current fair market value may not support a home equity loan.

Second, the Texas Constitution requires a twelve day cooling off period from application/receipt of notice concerning extensions of credit and a three day rescission period.  These CANNOT BE WAIVED!

  1. We would like to offer special, low-rate unsecured loans to affected consumers. Any minefields with that?
  2. Maybe. If your bank should be examined for fair lending pricing issues, this group of loans could skew the results.  But since employee loans are typically excluded from the analysis (due to special rates), this portfolio should similarly be excluded.

Be sure that all of your customers know about the program…not just protected class members.  If you market it, be sure to reach out to your Hispanic customers through Spanish-language radio, for example.

  1. Our customers will be filing claims on their insurance policies as to property damage. Any special problems there?
  2. Yes. The Texas Insurance Code (chapter 557) includes some rules that apply to lenders.  If a claim under a policy for damages to residential real property is paid to the insured and the bank and the bank holds all or part of the proceeds, the bank must notify the insured of its requirements for release of the proceeds.  This notice must be provided not later than the 10th day after the bank receives the insurance payment.

Similarly, if an insurance proceeds check for damages to personal property is made payable to the bank or otherwise requires the bank’s approval, then no later than the 14th business day after the bank receives a request for endorsement or approval it must either endorse/approve or provide a written statement of the reason for the denial.

  1. Many customers with debit/ATM cards did not opt-in to overdraft coverage when we sent the Reg E notice. Can we pay these if they overdraw?
  2. Certainly you MUST pay if the items are force-pays under the card rules. But you could pay these so long as you do not charge a fee of any sort for doing so.  Reg E, sec. 1005.17, prohibits a bank from assessing a fee or charge for an overdraft unless its requirements (notice and opt-in) have been satisfied.
  3. Are there any accounting consequences for waiving these (and other) fees?
  4. No. You just have foregone revenue.

Advisory Issued on FATF-Identified Jurisdictions with AML/CFT Deficiencies

The Financial Crimes Enforcement Network (FinCEN) today issued an advisory to financial institutions regarding the Financial Action Task Force’s (FATF) updated list of jurisdictions with strategic anti-money laundering/counter-terrorist financing (AML/CFT) deficiencies. These changes may affect U.S. financial institutions’ obligations and risk-based approaches regarding relevant jurisdictions. FinCEN’s advisory can be viewed at

Advisory Notice

Update on Fair Lending

The upcoming Heart of Texas Compliance Officers (HOTCO) meeting will feature Kennedy Sutherland attorney, Karen Neeley, as she provides an update on fair lending. During the meeting, Neeley will review the current status of fair lending following the U.S. Supreme Court decision on fair lending and the Equal Credit Opportunity Act (ECOA.) In addition, she will look at the recent CFPB redlining cases and discuss what they mean for banks.

HOTCO is an association for compliance officers at banks and credit unions in Travis County and surrounding areas. The meeting will take place on May 24, 2016 at 6 pm. at Morelia Mexican Grill in Pflugerville. Additional information regarding the meeting can be found on the Independent Bankers Association of Texas (IBAT) website.

Historic Tax Credit Improvement Act Introduced

Representative Mike Kelly (R-PA) introduced this week HR 3846, also known as the Historic Tax Credit Improvement Act of 2015. The Historic Tax Credit Improvement Act of 2015 proposes changes to the federal Historic Tax Credit to further encourage reuse and redevelopment in small, midsize and rural communities. The bill will increase the credit from 20 to 30 percent for projects with rehabilitation expenses of less than $2.5 million, which will help inject new private investment into smaller and more rural communities.  Other improvements include simplifying the process for the transfer of historic tax credits to investors for projects under $2.5 million. The bill provisions would be the first major changes to the federal Historic Tax Credit since the 1986 tax bill. The bill at introduction has bipartisan support with 9 original cosponsors.

The new legislation adds several provisions and eliminates others from the Creating American Prosperity through Preservation (CAPP) Act that was introduced in previous sessions.

Neeley Named 2015 Texas Super Lawyer in Banking

Kennedy Sutherland LLP is proud to announce that senior attorney Karen Neeley has been named a 2015 “Texas Super Lawyer in Banking.” . Neeley has been recognized in the field of banking by Super Lawyers since 2005.

Neeley is senior attorney and manages Kennedy Sutherland’s Austin office. Joining the firm in August 2015, Neeley provides legal services to community banks throughout Texas and has been a strong advocate for over 30 years. Routinely, she advises banks on regulatory compliance, examination preparation, policies and procedures and has special expertise in Bank Secrecy Act, fair lending and consumer compliance matters.

Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a patented multiphase process that includes a statewide survey of lawyers, an independent research evaluation of candidates and peer reviews by practice area. The result is a credible, comprehensive and diverse listing of exceptional attorneys. The Super Lawyers lists are published nationwide in Super Lawyers Magazines and in leading city and regional magazines and newspapers across the country.Super Lawyers Magazines also feature editorial profiles of attorneys who embody excellence in the practice of law.

See the complete list of Texas Super Lawyers 

New Texas Account Disclosure Web Seminar

Join the Independent Bankers Association of Texas for a complimentary web seminar about the ins and outs of the new Texas account disclosure in Senate Bill 1791, presented by IBAT General Counsel and Kennedy Sutherland LLP attorney, Karen M. Neeley. The web seminar will discuss what is required, what is not required and give practical advice on how to implement this disclosure at your bank.

Please plan to attend this informative program on Thursday, September 3, 10 -11 a.m. During the webinar, you will have the opportunity to submit questions online.

Register here

S.B. 1791, sponsored by Sen. Rodney Ellis (TX-13), requires financial institutions to notify people about the option to create a “pay on death” account, a type of bank account that allows ownership of the account to pass to beneficiaries when the account holder dies without the need for probate administration. The legislation was signed by Governor Abbott on May 22, 2015 and became effective September 1st.

Neeley to Present at Financial Institutions Forum

Karen M. Neeley, Senior Attorney at Kennedy Sutherland LLP, will present at the Padgett Stratemann’s 2015 Financial Institutions Forum on Wednesday, August 26th, 2015 at the Club at Sonterra in San Antonio, Texas. Neeley will cover “Emerging Hot Topics in Regulatory Compliance” from 10:45 – 11:30 am. Specifically, Neeley will touch on Employment Issues, Operations Issues, ADA, BSA/AML, CFPB and UDAP.

8:00 • 9:00           Registration and Continental Breakfast

9:00 • 9:15           Seminar Overview and Padgett, Stratemann & Co., L.L.P Update
Kathleen Fields, CPA, PS&Co.

9:15 • 9:45           Taxes After Tangible Asset Regulations
Lisa Contreras, CPA, PS&Co.

9:45 • 10:30         A Day in the Life of Today’s Community Banker
Chris Williston, President & CEO, Independent Bankers Association of Texas

10:30 • 10:45        Break

10:45 • 11:30        Emerging Hot Topics in Regulatory Compliance
Karen M. Neeley, Senior Counsel, Dykema Cox Smith

11:30 • 12:00        Compliance Update
Annette Evans, CPA, CRCM, PS&Co.

12:00 • 1:00          Lunch

1:00 • 1:45            What is Your Bank Worth?
Curtis Carpenter, Principal & Head of Investment Banking
Sheshunoff & Co. Investment Banking

1:45 • 2:30            Banking System Performance and Regulatory Hot Topics
Kurt Purdam, Dir. of Bank & Trust Supervision, Texas Dept. of Banking

2:30 • 2:45            Break

2:45 • 3:15            It’s a New HR World
Connie Collins, SPHR, SHRM-SCP, PI, PS&Co.

3:15 • 4:00            Accounting Update
Steven Griffith, CPA, CRCM, PS&Co.

Register Now

Karen M. Neeley Joins the Firm

Kennedy Sutherland LLP is pleased to announce Karen M. Neeley has joined the Firm, effective Augusta 24, 2015, as Senior Attorney and will establish an Austin, Texas office. Karen has provided legal services to community banks throughout Texas and beyond for over 30 years. In addition to serving as General Counsel for the Independent Bankers of Texas, she is a permanent member of the Board of Directors of the Texas Association of Bank Counsel. Karen advises banks on regulatory compliance, examination preparation, policies and procedures and has special expertise in Bank Secrecy Act, fair lending and other consumer compliance matters.

This expertise will complement Kennedy Sutherland’s community bank corporate, securities and regulatory practice involving capital and debt offerings, bank holding company formation and expansion, mergers and acquisitions, loan documentation and tax credit finance practice.

“The addition of Karen Neeley to our team brings a very powerful dynamic to our Firm and her legislative focus and experience is a welcome complement to our efforts on behalf of the industry in Washington DC,” commented Patrick J. Kennedy, Jr. , Managing Partner.

Karen stated, “Kennedy Sutherland is a great fit for me and my banking clients, many of whom we already share in common. The Firm has been a leader in the community banking industry and we look forward to many more years of important gains for our clients.”

Kennedy Sutherland LLP provides a full complement of services for the community banking industry including corporate, securities, bank regulatory and complex transactions, including government guaranteed lending, tax credit and community development finance. The firm has expertise in bank technology and new products and services. The Firm maintains offices in San Antonio and Austin, Texas but enjoys serving clients nationwide.

For more information contact:

Patrick J. Kennedy, Jr.
Kennedy Sutherland LLP
112 E. Pecan St., Suite 2810
San Antonio, Texas 78205
210-228-4431 direct office
210-213-0279 mobile
Karen M. Neeley
Kennedy Sutherland LLP
1717 W 6th Street, Suite 441
Austin, TX 78703
512- 289-0594 mobile