Bank Law Monitor

Bank Law Monitor

A Legal Blog for the Financial Services Industry

Even Lawyers Have to Pay Their Debts: Washington Court Sides with Bank on Successor Liability Claim

Posted in Banking

It turns out that even lawyers sometimes have to pay their debts. In a recent Washington appellate case, a bank successfully sued an attorney to recover on a loan made to his law firm. Typically the owner of a law firm wouldn’t be held responsible for the corporate debts of a firm (except under a separate personal guaranty). But after the firm ceased operations, the lawyer continued to operate the firm in a manner that was determined to be a “mere continuation” of the prior business. As a result, he was held personally liable as a successor on the firm’s loan.

The result is particularly interesting because the lawyer, who had signed a personal guaranty of the law firm’s debts, declared bankruptcy on the day that he ceased operations of his law firm. The lawyer’s personal guaranty was ultimately discharged in the bankruptcy proceeding, and that ordinarily would have ended collection efforts against the lawyer individually. Continue Reading

The CFPB’s Proposed Arbitration Rule: Dead or Alive?

Posted in CFPB

The banking and legal communities have been holding their breath to see what action the Consumer Financial Protection Bureau (CFPB) will take to curb certain mandatory arbitration clauses in consumer contracts. More than a year ago, the CFPB sought comments from the public on a proposed rule that would prohibit a specific type of arbitration clause in consumer financial contracts (e.g., contracts involving deposit and savings accounts, credit cards, student loans, automobile leases, etc.). During this public comment period, many bankers have argued that the arbitration process is an efficient way to resolve cases out of court, more quickly, and without the outrageous expenses associated with a traditional court case.

At this point, you might be asking yourself: If arbitration is so widely praised due to its efficiency, why would the CFPB want to prohibit these clauses in consumer contracts? The answer lies in a consumer’s ability to bring a class action, or to join in a class action when someone else files it. And the CFPB seems intent on restoring the rights of consumers to join class actions, notwithstanding contractual provisions to the contrary. Continue Reading

Core Considerations for Core Contracts

Posted in Banking

Available Lease Signature Contract

Negotiating the terms of a core processing contract makes haggling over a used car seem like child’s play. For most banks, the reality is stark—you might get some wiggle room on price if you’re willing commit to a longer term. You might also get a few changes on issues that “really matter.” But with only a few major core providers to choose from, these providers tend to think they hold most of the cards and don’t like to deviate from their form of master agreement. And when they do, they always seem to want a price adjustment. So it pays to be laser focused on the issues that matter to your institution and let the rest go. Here are some “core” considerations for your next core contract negotiation, or to any other major contract your bank may be considering.

Beware the Discount
Discounts are good, right? They save your bank money, and make you feel like you’ve negotiated a great deal. But before popping open the champagne, pause to consider what tradeoffs you’re being asked to make. Like cable providers, core providers often try to bundle services to get you to purchase things you weren’t otherwise intending to buy. They also may require you to agree to a longer term than you expected. Lastly, don’t excitedly push your team to meet a “discount deadline” at the risk of losing focus on other key issues in the contract—those so-called “deadlines” are usually flexible. Continue Reading

Banks Fight Back Against ADA Website Claims

Posted in Banking

What do financial institutions, restaurants, and clothing stores have in common? They’re the most recent targets of demand letters from plaintiffs’ law firms threatening lawsuits because the institution’s website supposedly violates the Americans with Disabilities Act (ADA). These law firms then offer to improve the accessibility of the institution’s website for a hefty fee. They call it “consulting services;” some banks and credit unions see it differently – calling it extortion and fighting back. The resistance might be working.

The scheme works like this: the bank (often a small community bank with a limited litigation budget) receives a demand letter from a firm purporting to represent a potential customer who’s visually impaired. The letter alleges that the bank’s website fails to comply with the ADA in any number of ways, from font sizes that’re too small to menus that’re too graphical. The firm will typically boast a list of dozens of lawsuits they’ve filed but offer to avoid litigation if the bank agrees to engage the firm to improve its website. The firm’s so-called “consulting fees” range from $15,000 to $50,000—all to settle a single plaintiff’s claim. Paying this fee doesn’t prevent the bank from receiving a similar demand letter the very next day. Continue Reading