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A newsletter covering bank legal and compliance information.

       Volume 17 • Issue 05                                                                        October 19, 2017

       TCF Wins Partial Dismissal                              are obscured by other account information. The court noted TCF
       of CFPB Overdraft Fee Case,                             gave the notice as customers were pressed to initial a number of
                                                               required items as they were also asked by TCF whether they wanted
       but Must Defend Itself Against                          to opt-in to the overdraft service.
       Claims of Unfair, Deceptive                             In a setback to CFPB, the court granted TCF’s motion to dismiss
       and Abusive Conduct                                     the CFPB’s Regulation E claims with prejudice.

       Although a Minnesota federal district court granted part of TCF’s
       motion to dismiss the CFPB complaint challenging the manner   Extra Space in Debtor’s Name
       in which TCF conducts its overdraft services, the court concluded   Renders UCC-1 Ineffective
       TCF will have to defend itself against charges that the manner in
       which it organized required notices and signed up customers for  A Wisconsin court has decided an extra space in the name of a
       its overdraft services were unfair, abusive and deceptive. According  debtor on a UCC-1 financing statement renders the filing ineffective
       to CFPB, TCF used consumer testing which revealed consumers  for material error. United States SEC v. ISC Inc., WD WI. Civ.
       agree to overdraft services at a much higher rate if time elapses  No. 15-cv-45-jdp, October, 2017.  In the case, a creditor obtained
       between being provided the opt-in notice and being asked to  judgment against a debtor in an enforcement proceeding filed by the
       consent.  CFPB also complains that TCF learned that the less it  U.S. Securities and Exchange Commission (SEC). The creditor filed
       explained to customers about the services, the more likely it was that  a UCC-1 to perfect its security interest in the debtor’s assets. The
       customers would consent. CFPB says TCF estimated approximately  debtor filed for bankruptcy protection and a receiver was appointed.
       $182 million in annual revenue was “at risk” because of the opt-in  When the receiver performed a search no filings were found with
       rule and that, as of mid-2014, approximately 66 percent of TCF  the result that the creditor’s interest was considered to be unsecured.
       customers opted in to overdraft services, a rate more than triple  The creditor objected.  Examination of the documentation disclosed
       that of other banks.                                    an extra space in the abbreviation for Incorporated (Inc.) on the
       In response, TCF argued that its conduct was not abusive or   filed financing statement. As a result, the debtor’s name did not
       deceptive because its employees neither advised customers not   show up from the receiver’s search.
       to read the opt-in notice nor provided information contradicting
       it. TCF also argued that Federal Reserve guidance only required   The creditor argued that the search must be “reasonably diligent”
       the notice to be provided to consumers at a point “prior to or at   and incorporate reasonable search terms and that reasonable search
       account opening.”                                       would have caused the creditor’s interest to be revealed. But the
                                                               court disagreed, finding computerized search logic has replaced
       The district court held a written notice itself does not protect TCF   the “reasonably diligent” standard one that is more precise: would
       from liability and that the entire transaction must be considered.   a search for the correct name produce a record of the filing in the
       Even though TCF gave the required notice, the court concluded the   system? The court Applying this latter standard, the court found
       bank’s overall conduct was “likely to deceive or confuse customers   the UCC-1 to be “seriously misleading” due to the extra space and
       about its overdraft services.” The court explained previous guidance   a search using the correct name did not reveal the filing. The upshot
       suggesting the notice is to be provided “prior to” account opening   is that the effectiveness of a financing statement may now depend
       also does not preclude liability. According to the court, the notice   on each individual state’s UCC search logic
       cannot be properly given when the terms of the overdraft service

                         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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