Mar 24, 2003
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In This Issue
Federal court permits Wells Fargo subsidiary to continue mortgage lending in California based on status as operating subsidiary of national bank but also allows California regulator to proceed with revoking subsidiary's state licenses.
By Charles E. Washburn
Judge Garland E. Burrell, Jr. of the United States District Court for the Eastern District of California issued an order on March 10, 2003 granting Wells Fargo Bank and Wells Fargo Home Mortgage, Inc. ("WFHMI") a preliminary injunction that enjoined the California Department of Corporations from enforcing the California Residential Mortgage Lending Act (the "RMLA"), the California Finance Lenders Law (the "CFLL") and certain other provisions of California law against Wells Fargo Bank and WFHMI. CIV. NO. S-03-0157 GEB JFM. In granting the preliminary injunction, the court concluded that Wells Fargo Bank and WFHMI "are likely to prevail on the merits of their claim that the OCC's recognition of WFHMI's status as an operating subsidiary is all that is needed for it to conduct its residential mortgage lending in California." Wells Fargo Bank and WFHMI also asked the court to enjoin the Department from revoking WFHMI's licenses to do business in California under the RMLA and CFLL, but the court concluded that WFHMI did not show "a probability of success on the merits of its claim that" the Department should be enjoined from revoking WFHMI's licenses under the RMLA and the CFLL.
Although the litigation is ongoing, the Court's ruling on Wells Fargo's motion for a preliminary injunction is of great interest to operating subsidiaries of national banks as well as mortgage lenders that are not affiliated with federally chartered banks or thrifts and therefore do not have the same benefits of federal preemption.
Board minutes containing confidential attorney-client communications when shared with accountants in a business context lose their privileged nature. (First Federal Savings Bank of Hegewisch v. U.s., Ct. Fed. Cls., No. 93-162c, 2/12/03)
By H. Katerina Hertzog
First Federal Savings Bank of Hegewisch disclosed unredacted board minutes to their auditors KPMG Peat Marwich. The U.S. Court of Federal Claims ruled that the minutes that were shared with KPMG in connection with a fraud investigation are privileged because they were shared in connection with legal matters. On the other hand, First Federal waived its claim of privilege with respect to minutes that were shared with KPMG relating to the preparation of annual audits because they were shared for business purposes. The court said that First Federal "made a conscious decision to disclose the privileged communications for a matter unrelated to the rendition of legal advice." The court ordered First Federal to release such board minutes to the U.S. government.
New York Stock Exchange decided that directors will not be considered independent if their firms' revenues derive 2% of revenue or $1 million dollars (whichever is more) from each other.
This ruling may prevent financial services firms to have as outside directors executives from major borrowers or for financial executives to similarly serve on such boards.
Proposal to modify Reg Y to loosen derivatives rule.
The Federal Reserve Board requested public comment on a proposal to modify a condition in the Board's Regulation Y in order to allow bank holding companies engaged in permissible derivatives activities to transfer title to commodities underlying derivative contracts on an instantaneous, pass-through basis.
Federal Reserve completes comprehensive review and revision of Regulation B.
The Federal Reserve Board published in the Federal Register on March 18, 2003 an amended and restated Regulation B and Official Staff Commentary thereto. 68 F.R. 13144 (2003). Restated Regulation B and the Commentary reflect the results of a comprehensive review of the regulation and commentary by the FRB that began in March 1998. An advance notice of rulemaking was issued by the FRB in 1998, and a proposed rule was issued in 1999. Among other significant changes, the revised regulation creates an exception to the general prohibition against inquiring about or noting applicant characteristics for non-mortgage credit transactions for the purpose of conducting a self-test. The regulation also establishes new record retention requirements for pre-screened credit solicitations, which provide that the text of the solicitation, criteria used to select potential customers and certain other information must be retained for 25 months. In addition, the regulation and commentary include a number of less significant changes that nevertheless will have an impact upon creditors' practices with respect to the gathering and evaluation of credit information and requiring signatures on loan documentation, as well as changes in the definitions of "adverse action," "application" and "creditor."
The revised Regulation B and Commentary take effect on April 15, 2003. However, and given the extensive changes in the regulation and commentary, the FRB has determined that compliance is not required until April 15, 2004.
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T. Hale Boggs
H. Katerina Hertzog
David M. Pike
Paul H. Irving
Harold P. Reichwald
Richard J. Maire, Jr.
John E. Stoner
Charles E. Washburn
T.J. Mick Grasmick
Peter F. Olberg
Sarbanes-Oxley ActThe many new requirements of the federal Sarbanes-Oxley Act impact businesses in various industries across the country. Please visit our Sarbanes-Oxley Resource Center for summaries of key sections of the Act and related new SEC, NYSE, NASDAQ and AMEX rules covering a wide variety of corporate governance, legal and accounting matters: http://www.manatt.com/sox.asp.
Steven R. ArnoldPartner
Ellen R. MarshallPartner
Craig D. MillerPartner
Barbara S. PolskyPartner
Harold P. ReichwaldPartner
Charles E. Washburn, Jr.Partner
Donna L. WilsonPartner
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