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NEFA 2014 FUNDING SYMPOSIUM September 19, 2014 Compliance Seminar II Protect Yourself! In today's environment, you are expected to comply with the rules.

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Presentation on theme: "NEFA 2014 FUNDING SYMPOSIUM September 19, 2014 Compliance Seminar II Protect Yourself! In today's environment, you are expected to comply with the rules."— Presentation transcript:

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2 NEFA 2014 FUNDING SYMPOSIUM September 19, 2014 Compliance Seminar II Protect Yourself! In today's environment, you are expected to comply with the rules. Ignorance of the law is no excuse! Be pro-active, and avoid compliance issues. 60 minutes to protect your bottom line Funding Symposium - San Antonio, TX

3 Moderator: Dennis Dressler Session Topics:  Reg B credit turn down issues about which you must be aware (Andy Alper)  Fair Credit Reporting Act & Fair and Accurate Credit Transactions Act: Issues Affecting Equipment Finance Companies (Jay Winston)  Dodd-Frank Act: Impact on Equipment Leasing and Finance (Tony Lamm)  Business Person on Panel: (John Rosenlund) 2014 Funding Symposium - San Antonio, TX

4 Legal Disclaimer The information presented is for general informational purposes only. This presentation is not to be deemed a substitution for consultation with an attorney. Consultation is not only recommended, but encouraged Funding Symposium - San Antonio, TX

5 EQUAL CREDIT OPPORTUNITY (REGULATION B) FOR LENDERS AND LESSORS 2014 Funding Symposium - San Antonio, TX

6 Presented by: Andrew K. Alper Frandzel Robins Bloom & Csato, L.C Wilshire Boulevard, Seventeenth Floor Los Angeles, California (323) Funding Symposium - San Antonio, TX

7 INTRODUCTION Equal Credit Opportunity Act (Regulation B) For Lenders and Lessors The Equal Credit Opportunity Act (ECOA) applies to all types of credit transactions, including consumer, commercial or business, agricultural and securities credit transactions. The ECOA can be found at 15 U.S.C. §1691 et seq Funding Symposium - San Antonio, TX

8 APPLICATION OF ECOA The ECOA applies to all types of credit transactions, including consumer, commercial or business, agricultural and securities credit transactions. A case decided by the United States Court of Appeals for the Ninth Circuit entitled Brothers v. First Leasing ( th Cir.) 724 F.2d 789, first held that ECOA applies to personal property leases 2014 Funding Symposium - San Antonio, TX

9 DISCRIMINATION BY CREDITORS There is nothing wrong with a creditor discriminating in the making of credit decisions. Whenever a creditor evaluates the creditworthiness of an applicant for credit, it is discriminating to some extent. Regulation B only prohibits discrimination when it is on a Prohibited Basis Funding Symposium - San Antonio, TX

10 COVERAGE OF ECOA The coverage of ECOA falls into 5 broad categories: Taking applications, evaluating applicants, acting on applications, making credit extensions, and furnishing and maintenance of credit information Funding Symposium - San Antonio, TX

11 EXEMPTIONS FOR BUSINESS CREDIT Under the ECOA, several types of credit transactions are afforded special treatment in the form of exemptions from certain Regulation B requirements. The most important type of credit singled out for special treatment under ECOA is credit extensions for business, commercial or agricultural purposes Funding Symposium - San Antonio, TX

12 PENALTIES AND ENFORCEMENT The ECOA provides substantial civil penalties for a creditor who fails to comply with its requirements 2014 Funding Symposium - San Antonio, TX

13 Next up – Dodd-Frank Act © Winston & Winston, P.C.

14 Dodd-Frank Act: Impact on Equipment Leasing and Finance 2014 Funding Symposium - San Antonio, TX

15 Presented by Anthony L. Lamm The Lamm Group 1608 Walnut Street Suite 703, PO Box 15 Philadelphia, PA Telephone: Website: © Winston & Winston, P.C Funding Symposium - San Antonio, TX

16 1.Scope of the Consumer Financial Protection Agency (CFPA) and its potential impact on the small-ticket market 2.Impact of Risk Retention Rules on the equipment finance securitization and syndication markets 3.Regulation of non-bank financial institutions and captive finance companies 4.Impact of the FCCA reporting requirements 5.The Dodd-Frank Act requires you to ask questions prohibited by Regulation B under ECOA Dodd-Frank: Wall Street Reform and Consumer Protection Act 2014 Funding Symposium - San Antonio, TX

17 Dodd-Frank: Wall Street Reform and Consumer Protection Act 1.To regulate banks and non-bank financial companies 2.Set up the Consumer Financial Protection Bureau to regulate anyone providing a consumer financial product or service 3.Which regulates those who broker or extend personal property leases, non-operating functional equivalent of an Installment Sales finance of at least 90 days 4.“Financial Protection or Service” includes:  Extending or brokering leases of personal property that are the non-operating functional equivalent of an installment sales finance arrangement of at least 90 days 2014 Funding Symposium - San Antonio, TX

18 Dodd-Frank: Wall Street Reform and Consumer Protection Act 1.Many Equipment Lessors and Lenders may not survive additional costs and limitations on funding which in turn would significantly decrease the availability of equipment leasing and loans to operating companies; “increases equipment finance costs and harms the US economic recovery”. 2.Small business Loan Data collection requirements under Dodd- Frank subject Commercial Loans of financial institutions to the Jurisdiction of the Consumer Financial Protection Bureau (CFPB) even though it was not instituted to regulate Commercial Loans. 3.Consumer Financial Protection Bureau is given authority to regulate anyone providing a consumer financial product or service. Because of the blurring of the lines between Commercial and Consumer, a Single Member LLC, or 1 shareholder may well fall within the definition of a consumer. However, mortgage ABS and shareholder loans are exempt Funding Symposium - San Antonio, TX

19 ELFA Comments: Recognizing that Risk is already retained by various methods: 1.Overcollateralization – the excess of the cash flow from the payments that exceed administrative costs, principal, investments and waterfall payments. 2.Residual Value - As long as the notes have not been accelerated, the proceeds from the sale of the equipment at the end of term are a hedge against risk. The proposed risk makers say “No”. They say the securitization should be permitted to receive only scheduled payments of principal on the assets but not a subordinated share of a prepayment (due to an upgrade) or recoveries from deposition of equipment under default. 3.Risk Retention – in many cases, equipment lessors will not recover their investment or realize a profit until they sell or re-lease the equipment at the end of the lease term, so this economic reality constitutes a valid form of risk by the lessor. 4.Securitization and ABS - Required to retain not less than 5% of the credit risk but allows for less than 5% if there is a lesser credit risk with respect to the loan. Dodd-Frank: Wall Street Reform and Consumer Protection Act 2014 Funding Symposium - San Antonio, TX

20 1.The potential impact of Risk Retention regulations on the Capital Formations Process for equipment finance companies, especially their access to the securitization market 2.During the past 20 years, equipment lessors/lenders have been significant users of securitization facilities of offering securities backed by lease/loan cash flow and equipment residual values to investors in equipment asset-based securities (ABS) 3.The securitization market has been a valuable alternative at competitive pricing to the bank loan markets and has provided access to institutional investors (such as pension plans, insurance companies and investment funds) that provide a meaningful compliment to traditional syndicated bank loans 4.ELFA’s Companies Offered: Regulations will be governed by a series of “considerations” in there deliberations. The “Considerations” include the amount of the leverage, the amount and nature of the assets, the amount and types of liabilities, off-balance sheet exposures, and the amount of credit provided to commercial and retail customers. Dodd-Frank: Wall Street Reform and Consumer Protection Act 2014 Funding Symposium - San Antonio, TX

21 Next Up – FAIR CREDIT REPORTING ACT AND FAIR AND ACCURATE CREDIT TRANSACTIONS ACT

22 Fair Credit Reporting Act (FCRA) & Fair and Accurate Credit Transactions Act (FACTA): Issues Affecting Equipment Finance Companies © Winston & Winston, P.C.

23 Presented by: Jay Winston (President) Winston & Winston P.C. 295 Madison Avenue, Suite 930 New York, N.Y © Winston & Winston, P.C Funding Symposium - San Antonio, TX

24 FCRA-FACT ISSUE Can I pull a Credit Report on a Guarantor or a sole proprietor (John d/b/a Truck Company) – to extend credit? – to collect a debt? Do I need written consent? Do I need a debt? Do I need a judgment? © Winston & Winston, P.C Funding Symposium - San Antonio, TX

25 Permissible Purpose? A company may obtain a consumer credit report when given express permission or when the company has a “permissible purpose” under 15 U.S.C. § 1681b. One “permissible purpose” for obtaining a credit report occurs when the purpose relates to (1) a credit transaction involving the consumer and (2) the purpose relates to the extension of credit or review/collection of the account of the consumer. © Winston & Winston, P.C Funding Symposium - San Antonio, TX

26 Not a permissible purpose due to FACTA amendments Child support. Miller v. Trans Union LLC, 2007 U.S. Dist. LEXIS (N.D. Ill. Feb. 28, 2007). Only because I have a judgment: – unjust enrichment; – commercial transaction; – Taxes. © Winston & Winston, P.C Funding Symposium - San Antonio, TX

27 Written Consent But did it terminate? In Vandyke v. Northern Leasing Sys., 2009 U.S. Dist. LEXIS (E.D. Cal. Oct. 14, 2009), the plaintiff entered into a software lease agreement in A month later, the plaintiff cancelled the agreement. The defendant threatened to “pull [the plaintiff’s] credit report 100 times every 6 months and take her to court.” The defendant (creditor) obtained six credit reports in The court found no “permissible purpose” because the business transaction had terminated in The court also concluded that the express permission given in the contract was revoked when the contract was terminated. © Winston & Winston, P.C Funding Symposium - San Antonio, TX

28 Can consent end? Verbal termination In Drewry v. Starr Motors, Inc., 2008 U.S. Dist. LEXIS (E.D. Va. 2008), the plaintiff attempted to obtain financing to purchase a car. The plaintiff signed two separate contracts giving permission for financers to obtain credit reports. The financing was rejected. The financing was rejected several times because the plaintiff was self employed. The defendant, a car dealership, offered to finance the car and obtained a new credit report. However, the plaintiff rejected the defendant’s offer and returned the car. The plaintiff alleges that he did not give the defendant permission to obtain the last credit report. The court concluded that there may be a FCRA violation if the business relationship between the parties had ended prior to obtaining the report. The parties would need to proceed to trial to determine when the business relationship ended. © Winston & Winston, P.C Funding Symposium - San Antonio, TX

29 Can a bankruptcy end consent? Another unresolved issue is whether the filing of a bankruptcy terminates the extension of credit, and, therefore, the consent. The court in Goodby v. Wells Fargo Bank, N.A., 599 F. Supp. 2d 934 (S.D. Ohio 2008), concluded that Wells Fargo did not have a ‘permissible purpose’ to obtain a credit report after the discharge. Obtaining the report was not related to a credit transaction or the collection of the debt because the mortgage had been discharged. © Winston & Winston, P.C Funding Symposium - San Antonio, TX

30 Furnisher’s Duty to investigate disputes. Perception: I only have a duty to investigate a dispute if I receive a notification from a Credit Bureau. Statute: If you have reason to know the report is incomplete or inaccurate – furnisher has a duty to update/correct. Law: “The Fourth, Sixth, Ninth, and Tenth Circuits have all held that § 1681s-2(b) requires furnishers to correct both "'false information,' which is 'clearly inaccurate'" and "information provided 'in such a manner as to create a materially misleading impression... '“Mason v. Chase Home Fin., LLC, 2014 U.S. Dist. LEXIS 1009 (D.N.J. Jan. 6, 2014). © Winston & Winston, P.C Funding Symposium - San Antonio, TX

31 Katz v. American Express Co., 2014 U.S. Dist. LEXIS (D. Haw. Aug. 20, 2014) “Plaintiffs obtained a "corporate credit card" in 1994 in response to a mailed solicitation from AMEX for their business, Second Equity Concepts, Ltd. ("SECL).Plaintiffs made almost all of their personal purchases on this credit card, and made timely payments using their personal joint checking account. “ “Moreover, although the credit reports did not reflect the timely credit card payments, AMEX "recently" reported to unspecified CRA Defendants that Roseann owed a debt of $6, to AMEX as a personal liability. “ (SUGGESTS CREDIT REPORTING UPON DEFAULT) “Plaintiffs contend that (1) they suffered a credit score that is ‘much lower than it otherwise would have been had [AMEX] reported personal payments on the SECL credit card properly;" (2) Pl is unable to buy a new automobile’ even though she otherwise would qualify….” © Winston & Winston, P.C Funding Symposium - San Antonio, TX

32 Katz v. American Express Co., continued COURT: “[It] is premature to dismiss this claim with prejudice. Plaintiffs argue in their Objection that they ‘applied for and received an [AMEX] 'Corporate Gold Card.'“ Plaintiff “argue[s] that such a card is not a "business" card, although such a distinction is not alleged in the Amended Complaint. The Amended Complaint -- although unclear -- might be seeking to allege that Plaintiff used their AMEX card for all their personal expenses, with AMEX's knowledge and approval.” © Winston & Winston, P.C Funding Symposium - San Antonio, TX

33 Katz v. American Express Co., continued “It thus might be possible that Plaintiffs are claiming that the credit card -- whatever its title -- was actually ‘consumer credit’ because it was used not ‘primarily for business purposes’ but rather primarily for consumer purposes” © Winston & Winston, P.C Funding Symposium - San Antonio, TX

34 SBA: New Requirement for Loan Data Reporting. Jeff DobbinsJeff Dobbins National Account Executive at Business Credit Reports, Inc. If you’re not reporting loan data to the major bureaus, you may have an SBA guarantee issue! For over a year, the Small Business Administration has required that all SBA loans are to be reported to the major business credit bureaus at least on a quarterly basis. The updated Standard Operating Procedure effective March 1, 2013 says, “Lenders are required to report information to the appropriate credit reporting agencies whenever they extend credit via an SBA loan. Thereafter, they should continue to routinely report information concerning servicing, liquidation, and charge-off activities throughout the life- cycle of the loan.” While most SBA lenders are generally familiar with the need to report debt collection and charge-off, it is clear that lenders must now report during loan servicing too. Furthermore, both current and delinquent accounts are to be reported. Also, reporting must be to at least one of the three major bureaus, D&B, Experian and Equifax. Smaller, industry specific bureaus, while helpful, will not meet this requirement. The best practice is to report loan payment experiences on all accounts, regardless of any Federal guarantee. Lenders who report their payment data to the major bureaus get paid better. Advising your customers that their payment performance is being reported provides you more leverage to get paid on time. By reporting good payment behavior, you’re helping your “good” customers to build their credit record, which enables them to grow their business. NAGGL suggests strongly that lenders ensure that applicants understand that payment and loan status information will be reported to the business credit bureaus. © Winston & Winston, P.C Funding Symposium - San Antonio, TX

35 Beware of Bait Guarantor disputes debt. Advises you or the bureaus it is disputed. Guarantor then pays the debt. Report the debt as disputed! Or risk being sued. Dual use products - even when a stretch – – Trucks, Car, boats, Airplane’s – Computers, Printers, etc Courtesy leases/ loans of personal vehicles to owner’s of business. © Winston & Winston, P.C Funding Symposium - San Antonio, TX

36 Norcom v. Lease Fin. Group, LLC, 2014 U.S. Dist. LEXIS (D. Or. June 17, 2014) “After she signed the lease, plaintiff [alleges] an unknown party altered the lease and added equipment to the lease agreement without her knowledge or consent. Plaintiff claimed she cancelled the lease and returned the equipment.” “Here, the personal guaranty appearing in the lease, to which plaintiff agreed, grants permission to Lease Finance Group ‘to obtain an investigative credit report from a credit bureau or credit reporting agency and conduct credit checks concerning my [plaintiff's] credit history.’” “Alternatively, FCRA authorized Lease Finance Group to obtain plaintiff's credit report in order to collect on the judgment it obtained against her” This part of the case is bad wrong(You also need a consumer credit transaction.) – FACTA AMENDMENTS CHANGED OR to AND Case does not mention FACTA. – good defense attorney © Winston & Winston, P.C Funding Symposium - San Antonio, TX

37 About Jay Winston Admitted in New York, New Jersey, & Connecticut. Frequent Speaker at Industry Related Conferences on Credit & Collection issues including Bankruptcy, Privacy and E-commerce law for the past 10 years. Manages an Attorney Network of over 100 firms for its national and international clientele. Regularly writes articles for several publications, including Newsline and has co-authored a well respected book on credit and collection law. Applies a business model / risk management approach when advising clients on today’s new issues. © Winston & Winston, P.C Funding Symposium - San Antonio, TX

38 The Complete Guide to Credit and Collection Law (1996- current) Over 2000 pages 2015 Edition to be published by American Bar Association. © Winston & Winston, P.C Funding Symposium - San Antonio, TX

39 John G. Rosenlund, CLP Director-Risk Management Portfolio Financial Servicing Company 7303 SE Lake Rd Portland, OR Telephone: website: Dennis A. Dressler Dressler | Peters LLC 111 West Washington Street, Suite 1900 Chicago, IL Direct: Main: website: Andrew Alper Frandzel, Robins, Bloom & Csato, L.C Wilshire Boulevard, 17th Floor Los Angeles, CA Phone: Web: Jay Winston Winston & Winston, P.C. 259 Madison Ave., Suite 930 New York, NY Direct Webs: Anthony L. Lamm Lamm Rubenstone LLC 1608 Walnut Street, Suite 804 Philadelphia, PA Telephone: Philadelphia, PA Website: Funding Symposium - San Antonio, TX


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