United States: Financial Services Alert
Vol. 5 No. 5

• Agencies Find Privacy Rules Permit Lender to Include Borrower’s Loan Number on Recorded Documents

The OCC, FRB, FDIC, OTS, NCUA and FTC (the "Agencies") issued a joint letter concluding that Title V of the Gramm-Leach-Bliley Act (the "GLBA"), which contains the privacy restrictions, permits an originating lender to include the borrower’s loan account number on mortgages, deeds of trust and other mortgage loan documents recorded in public records. The Agencies found that the presence of the account number on the mortgage loan document facilitates the appropriate handling and filing of the document, and its disclosure therefore falls under a privacy exemption permitting disclosures that are necessary to effect, administer or enforce the transaction. The Agencies also concluded that including loan numbers on recorded documents does not violate the provision of the GLBA that prohibits the disclosure of account numbers to nonaffiliated third parties for use in marketing because the disclosure is not made for marketing purposes.

• Agencies Extend Form 5500 Filing Deadlines

The U.S. Department of Labor’s Pension and Welfare Benefits Administration (the "PWBA"), the Internal Revenue Service and the Pension Benefit Guaranty Corporation have extended the deadline for filing Form 5500, the annual report for employee benefit plans. The extension applies to plan administrators, employers and other entities that are located in Federal disaster areas as a result of the September 11 terrorist attacks. If the original filing deadline is between September 11 and November 30, then the extension is for 6 months plus 120 days; if the deadline was already extended and the extended deadline is between September 11 and November 30, then the extension is for 120 days. Any other filers who are having difficulty in meeting filing deadlines because of disruption of transportation and delivery of documents resulting from the disasters, but who do not qualify for the filing extensions, will have until November 15 to file their Form 5500.

In addition, the Assistant Secretary of Labor for the PWBA indicated in a statement that she understands there will be a wide variety of compliance-related issues and concerns over the next few months as the practical and personal implications of the disasters unfold. She acknowledged that in addressing these issues there may be instances where full compliance may not be possible. In these instances, she indicated that the guiding principle must be to ensure that appropriate efforts are made to act reasonably, prudently and in the interest of workers and their families.

• Court Denies Tax Refund to Trusts

On September 18, 2001, the United States Court of Appeals for the Federal Circuit upheld the Court of Federal Claims decision denying Mellon Bank N.A. ("Mellon") a consolidated tax refund of income taxes paid by 13 trusts created for the benefit of members of the Richard K. Mellon family. Mellon claimed that I.R.C. § 67, which allows miscellaneous itemized deductions only to the extent the aggregate of the deductions exceed 2 percent of the adjusted gross income, should not apply to fees paid by the trustee for investment strategy and accounting, tax preparation and management services. I.R.C. § 67(e)(1) provides an exception to the 2 percent floor where expenditures are paid or incurred in connection with the administration of the trust and the costs would not have been incurred if the property were not held in trust. The Court of Appeals rejected Mellon’s interpretation of the exception found in I.R.C. § 67(e)(1) and noted that, because the costs were not unique to the administration of the trust and could normally be incurred outside the trust, Mellon failed the second requirement of I.R.C. § 67(e)(1) and thus, could not fully deduct the costs.

• IRS Grants Taxpayer Relief

In the wake of the terrorist attack on Tuesday September 11, 2001, the Internal Revenue Service released Notice 2001-61 and Notice 2001-63 granting taxpayer relief to those affected by the attack and additional relief to those experiencing difficulties in meeting their filing and tax payment requirements on account of the attack. Notice 2001-61 provides relief to "affected taxpayers" which includes the victims of the airplane crashes, relief workers and taxpayers whose place of employment is within the Presidentially declared disaster areas. Individual taxpayers located in the affected counties and individuals who are affected taxpayers who have extended their time for filing their 2000 individual tax returns past September 10, 2001 will have until February 12, 2002 to file their returns. Affected taxpayers other than individuals are granted a 120 day postponement to file federal tax returns due on or after September 11, 2001 and on or before November 30, 2001. These extensions do not apply to the payment of taxes. Estimated tax payments originally due on or after September 11, 2001 and on or before January 15, 2002 for taxpayers located in the affected counties and other affected taxpayers are postponed until January 15, 2002. Additionally, taxpayers who have difficulty in meeting their federal tax obligations because of the terrorist attack disrupting mail or private delivery services and who otherwise do not qualify for relief, will have until November 15, 2001 to file returns and make payments required to be made from September 11, 2001 through October 31, 2001. Meanwhile, Notice 2001-63 postpones the due date for all federal tax obligations falling between September 10, 2001 and September 24, 2001 until September 24, 2001. This postponement does not apply to deposits of federal taxes. However, Notice 2001-61 does announce that, in some instances, the Internal Revenue Service will waive penalties for late deposits due to the terrorist attack.

• California Enacts Mortgage Lending Restrictions

The California Legislature passed Assembly Bill No. 489 and sent the bill to Governor Grey Davis, who has stated that he will sign it. The bill, which is intended to combat so-called "predatory lending," imposes various limitations and prohibitions on residential mortgage loans in which the original principal balance of the loan is $250,000 or less, and in which either of the following conditions is met: 1) for a mortgage or deed of trust, the APR at consummation of the transaction will exceed by more than 8 percentage points the current yield on Treasury securities having comparable periods of maturity; or 2) the total points and fees (as defined in the bill) payable by the consumer at or before closing will exceed 6% of the total loan amount. Among other things, the bill prohibits the imposition of a prepayment penalty more than three years after origination, requires a special consumer disclosure, and requires the lender to have a "reasonable belief" that the consumer can make the scheduled payments. The criminal penalties that were a part of earlier versions of this legislation have been removed but the bill specifically permits the imposition of punitive damages in an action by a consumer. The bill’s provisions will apply to loans applied for on or after July 2, 2002.

As a result of the call-up of military reservists, the firm has received a number of questions from clients regarding protections afforded to military personnel. As a result, the firm has prepared a client memorandum on the Sailors’ and Soldiers’ Civil Relief Act of 1940. A copy of that memorandum is available upon request.

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