Maryland Legal Alert for Financial Services

• PREEMPTION – NOW YOU SEE IT, NOW YOU DON’T!


• ADVISORY SUGGESTS ADDENDUM FOR FORECLOSURE MEDIATION CHANGES


• AUTHENTICATION IN A CHANGING ENVIRONMENT


• BANK PREVAILS IN RECENT GARNISHMENT CASE

PREEMPTION – NOW YOU SEE IT, NOW YOU DON'T!
While in the OCC's view, it's almost business as usual for federal preemption after enactment of the Dodd-Frank Act, the Department of the Treasury begs to differ. Following publication of the OCC's proposed rule relating to the federal preemption of state consumer financial law, which concludes in part that most of the OCC's prior preemption regulations survive Dodd-Frank, Treasury on June 27 sent a comment letter outlining its concerns. Treasury believes that Dodd-Frank indeed changed the law, and that regulations based on an "obstruct, impair, or condition" standard do not satisfy the Dodd-Frank preemption standard of "prevent or significantly interfere." As stated in Treasury's letter: "The [OCC] rule seems to take the position that the Dodd-Frank standard has no effect . . . ." Speculation is that the conflict between Treasury and the OCC will be resolved by appointment of a Comptroller better aligned with Treasury's view. In the meantime, institutions need to continue their preparations for life under the new Dodd-Frank preemption rules, which become effective later this month on July 21. If you have questions about preemption, please contact Carla Witzel or Margie Corwin.

ADVISORY SUGGESTS ADDENDUM FOR FORECLOSURE MEDIATION CHANGES

As reported in our May 2011 Maryland Legal Alert, House Bill 728 (enacted as Chapter 355 of the 2011 Maryland Laws), extends from 15 to 25 days the time within which a homeowner may request foreclosure mediation. This new law became effective June 1, 2011. However, the Commissioner of Financial Regulation has not yet had the opportunity to update Maryland's foreclosure regulations. This means the foreclosure timeline, which is required by statute and prescribed by regulation, is now incorrect. On June 10, DLLR issued an advisory recommending that an addendum be attached to all foreclosure timelines mailed on or after June 1, 2011 to explain that there is an additional 10 days within which a homeowner may request foreclosure mediation. Please contact Margie Corwin if you have any questions about the residential mortgage foreclosure process in Maryland.

AUTHENTICATION IN A CHANGING ENVIRONMENT

Pursuant to the FDIC's Financial Institution Letter FIL-50-2011, effective January 1, 2012, banks, savings associations and credit unions will need to upgrade their controls for high-risk online transactions through layered security for both business and consumer accounts. Significantly, simple device identification, as a primary control (a cookie loaded on the customer's PC to confirm that it is the same PC that was enrolled by the customer and matches the login ID and password that is being provided) should no longer be considered an effective risk mitigation technique. At a minimum, a layered security program must contain: (1) processes designed to detect anomalies and effectively respond to suspicious activity related to initial login and authentication of customers and initiation of funds transfers to other parties; and (2) enhanced controls for customers' system administrators who are granted privileges to set up or change system configurations exceeding the controls that apply to routine business customer users. Implementation of these changes means that internet banking agreement forms and procedures will need to be modified. If you have questions about how these changes may impact your business or need assistance conforming your documents and procedures to these new requirements, please contact Carla Witzel.

BANK PREVAILS IN RECENT GARNISHMENT CASE

A recent court decision reminds us that information contained on the face of a writ of garnishment is extremely important in determining a garnishee's responsibility to hold property. In Phoenix Life Insurance Company, et al. v. Wachovia Bank, N.A. et al., filed June 1, 2011, the Maryland Court of Special Appeals focused on the individual judgment debtor's address on the face of writ. That address was different from the address on a bank account maintained at the garnishee by that judgment debtor. In addition, at least one writ failed to include the individual judgment debtor's name (the result of an error by the clerk of the court). Based on these facts, the Court determined that the bank did not have a responsibility to hold funds in the individual judgment debtor's account, at least until additional information was provided by the judgment creditor that allowed the bank to identify with specificity the account as belonging to the judgment debtor. Please contact Margie Corwin if you have questions concerning bank garnishments.