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A newsletter covering bank legal and compliance information.

       Volume 18 • Issue 01                                                                        January 11, 2018

       Alleged Discount Point                                  Fourth Corner then sued. In 2017, the U.S. Court of Appeals for
       Deception Costs Bank $2.8M                              the Tenth Circuit decided the credit union could serve supporters
                                                               of marijuana legalization but not the licensed marijuana businesses
                                                               themselves. With that, the credit union reapplied for a master
       A Lawrence, KS, bank has consented to paying $2.8 million to
       the Federal Reserve to resolve allegations that the bank tricked   account, stating it would have a limited mission to serve marijuana
       borrowers into paying for discount points that may have not   advocacy organizations only. After the Kansas City Fed delayed
       reduced the mortgage interest rates they were charged. According   its decision and asked for more information on the traditionally
       to the Fed, from 2011 through March 2015, bank loan officers   one-page account application, the credit union sued again on the
       regularly gave prospective mortgage borrowers the option to   ground of discrimination.
       purchase discount points to lower their interest rate. The consent   The new case will address some important questions for banking
       order states the bank’s disclosures gave an accurate quantitative   marijuana-related businesses and the power of the Federal Reserve
       picture of the loans’ costs, but the bank mischaracterized these   to deny a master account to a chartered financial institution. For
       costs because borrowers did not receive a lower interest rate.  those desiring to capitalize on state-legalized marijuana, the court
                                                               case may be guidance about how far from “plant-touching” a
       Based on the disclosures, the Fed alleged borrowers reasonably   business must be before its proceeds are legal under federal law and
       believed the discount points would reduce their interest rate,   may help financial institutions to serve customers who, because of
       as compared to interest rate the bank would otherwise make   state legalization, now have clients, tenants, or other income streams
       available. According to the Fed, the bank did not have a written   that can be traced back to marijuana activity.
       policy for buying/paying down an interest rate.
                                                               The matter of the Federal Reserve authority to deny a chartered
       Under the terms of the settlement, the bank will pay approximately   depository institution access to the national payment system
       $2.8 million in restitution to the borrowers and end its national   also has implications for the resurgent state-owned bank debate.
       mortgage business. Post regulatory proceedings, the bank is being   Federal Reserve reluctance to grant a master account to a state-run
                                                               depository institution is a huge impediment to the implementation
                                                               of those proposals.
       Marijuana Credit Union
       Keeps on Pushing                                        CFPB Successfully Claims
                                                               Jurisdiction Over Reservation-
       Fourth Corner Credit Union is a Colorado state-chartered credit
       union chartered in 2014 to serve state marijuana businesses.  It   Based Lenders
       applied to obtain a master account with the Kansas City Federal
       Reserve in order to connect to the national payments system.  The  The Otoe-Missouria Tribe of Indians and the Chippewa Cree Tribe
       Kansas City Fed denied the application in 2015 on the grounds  of the Rocky Boy’s Reservation established two for-profit lending
       that the credit union’s business plan to serve marijuana businesses  companies, Great Plains Lending, LLC, and Plain Green LLC. In
       would be a direct violation of federal law.             June 2012, the CFPB issued a civil investigative demand (CID)

                         The NDBA Legal Update is designed to provide accurate and authoritative information in regard to the subject matter covered.
                        It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service.
                             If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

       NDBA • PO Box 1438, Bismarck, ND 58502-1438 • Ph: 701.223-5303 • Fax: 701.258-0218 • Email: •
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