As promised, last week, here is the upload of CIiCU #75 we did at the NAFCU Compliance Conference. Thanks to Steve Van Beek for participating on the panel and to NAFCU for making the live show possible.
Hal, Katherine & I discuss the following: BSA miscellany, Credit union asset growth and shrinking number of CUs, green CUs, MBL update, CU social media issues, new disclosure requirements in 2013 and Obamacare for credit unions.
Filed under: Current Issues in Credit Unions
Could it have been only a year ago that we did our very first live episode of Current Issues in Credit Unions From the NAFCU Compliance Conference in Orlando, Florida? That experience went so well that the good people at NAFCU have asked us back and most of the CIiCU gang is bound for Seattle this week. This Thursday at 10:45 a.m. Pacific we will be live an in person at the NAFCU Regulatory Compliance Seminar being held at the Sheraton Hotel in Seattle. The show is of course being recorded normally so podcast fans will get to hear it after the fact. Although there are live streaming events at this conference our show will only be live to the attendees so you have to go to see it.
We normally come up with the topics for the show 3 days in advance, so they are being debated as we speak. I can promise you it will be cavalier but informative. We won’t hold back. Hal Scoggins, Katherine Weber and I will be there along with Steve Van Beek from NAFCU. It will be a show to remember.
If you will be going and there is a topic or something you want to address, feel free to email me. This format gives us a lot of lattitude to explore credit unions issues with a legal focus while preserving the necessary irreverence.
Filed under: bankruptcy, Fair Credit Reporting Act | Tags: credit reporting agencies
By Scott D. Fink, Partner
A bank’s task of accurately reporting its customers’ accounts to Credit Reporting Agencies (“CRAs”) is a tall order, in and of itself. When you factor in a Chapter 13 bankruptcy filing by a customer, the task can become confusing, at best and sanctionable, at worst.
On one hand, a bank is subject to the provisions of the Fair Credit Reporting Act (“FCRA”), codified at 15 U.S.C. §1681, which provides that “a person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate.” 15 U.S.C. §1681s-2(a)(1)(A). On the other hand, when a customer files for relief under Chapter 13 of the Bankruptcy Code, pursuant to 11 U.S.C. §1327(a), confirmation of a debtor’s plan binds the debtor and each of the debtor’s creditors to the plan terms.
Problems arise when the Chapter 13 Plan treatment differs from the actual pre-petition status of the loan. For instance, a vehicle loan may be 75 days past due at the time of filing, but the loan is then treated as “current” through the Chapter 13 plan going forward. Or, the actual balance owing on the loan and the contract rate of interest may be “crammed down” or modified. In those instances, a bank is faced with a choice: report the debt to CRAs as delinquent based on the original pre-bankruptcy status and contract terms or report the debt to CRAs as “bankrupt-Chapter 13″, along with the modified terms as set forth in the confirmed plan.
In determining the best practices for a lender, it should be noted that there is very little case law which addresses the issues created when creditors report to CRAs during the pendency of a Chapter 13 case. The case of In re Luedtke, 2008 Bank. LEXIS (Bankr. E.D. WI. July 31, 2008), was particularly enlightening, as it involved an allegation that a credit union continued to report a member’s loan as late, despite a confirmed Chapter 13 plan which crammed down the balance to the fair market value of the vehicle. Further, the credit union was alleged to have continued to report the pre-bankruptcy balance owing on the loan, as opposed to the lesser, crammed-down amount.
In finding for the debtor, the Luedtke court held that the credit union violated the confirmation order by affirmatively and inaccurately reporting the debt to CRAs. The credit union was ordered to cause the CRAs to remove the disputed information. While recognizing the credit union’s good faith belief that it was accurately reporting the debt based on the pre-petition status, the court made clear that the only accurate way to report such a debt would be to conform to the terms as modified in the confirmed plan.
The Luedtke court reasoned that allowing a creditor to report the original amount of the loan and that the plan payments were excessively late based on the original loan terms, undermines the spirit and purpose of Chapter 13, which is designed to allow a debtor to reorganize and pay creditors over time under a court supervised plan.
Thus, it can be safely inferred that the best practice for banks faced with reporting a customer’s account when a Chapter 13 is filed would be to cease reporting the account as delinquent and, instead, report the account as “bankrupt-Chapter 13″ while the case remains pending. Further, with regard to timeliness of payments, a creditor should treat a loan as current when the obligation is provided for in a confirmed plan. To attempt to report to CRAs based upon the pre-bankruptcy status of the loan puts the creditor at risk of potential sanctions brought by a customer, based either on a violation of the confirmation order or FCRA.
Finally, when a secured claim is modified in a confirmed plan, a creditor should be sure to accurately report the balance based upon the modified terms, not based upon pre-bankruptcy account status.
If you have any questions on this matter, please contact Mr. Scott D. Fink, Esq. Scott is a partner in Bankruptcy who focuses on the Consumer and Commercial Bankruptcy Groups based in the Brooklyn Heights, Ohio office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 216-739-5644 and email@example.com.
by David S. Brown, Esq.
A fundamental rule of corporate law is that shareholders, officers and directors are not liable for the debts of the corporation. In this respect, individuals find the corporate form useful because it creates a division between shareholders and their business concerns. Simply put, the corporate form insulates individual shareholders from being held liable for corporate wrongdoings or debts. The Ohio Supreme Court summarized this concept by stating that, “the corporate form has been introduced for the convenience of the company in making contracts, in acquiring property for corporate purposes, in suing and being sued, and to preserve the limited liability of the stockholders, by distinguishing between the corporate debts and property of the company, and of the stockholders in their capacity as individuals.”
As with most rules, an exception has been developed in equity to protect creditors of a corporation from shareholders who use the corporate entity for criminal or fraudulent purposes. To this end, the Supreme Court has made clear, “[t]hat a corporation is a legal entity, apart from the natural persons who compose it, is a mere fiction, introduce for convenience in the transaction of its business, and of those who do business with it; but like every other fiction of the law, when urged to an intent and purpose not within its reason and policy, may be disregarded.” Thus, individual shareholders may be found liable to third parties for their own bad acts, regardless of the protections afforded by the corporate form, when they use the corporation “for criminal or fraudulent purposes” to the detriment of a third party. Under this “piercing the corporate veil” exception, the “veil” of the corporation can be “pierced” and individual shareholders held liable for corporate misdeeds when it would be unjust to allow the shareholders to hide behind the fiction of the corporate entity. This scenario most commonly plays out in circumstances where an individual shareholder is indistinguishable from, or the “alter ego” of the corporation itself.
In order to determine when the corporate form can be set aside and the veil pierced, the Supreme Court has established the Belvedere test. Under Belvedere, the corporate form may be disregarded and individual shareholders held liable for corporate debts if three key elements are met. The elements are: (1) The individual shareholder’s control over the corporation is so complete that corporation has no separate mind, will, or existence of its own; (2) The individual shareholder’s control over the corporation is exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity; and (3) An injury or unjust loss resulted to the plaintiff from such control and wrong. All three prongs of the test must be met for piercing to occur.
The Belvedere test focuses on the extent of the shareholder’s control of the corporation and whether the shareholder misused the control so as to commit specific egregious acts that injured the plaintiff. The Court later amended the Belvedere test in Dombroski when it held that “to fulfill the second prong of the Belvedere test for piercing the corporate veil, the plaintiff must demonstrate that the defendant shareholder exercised control over the corporation in such a manner as to commit fraud, an illegal act, or a similarly unlawful act.” The Court further stressed that “courts should apply this limited expansion cautiously toward the goal of piercing the corporate veil only in instances of extreme shareholder misconduct.”
If a plaintiff is able to successfully prove each of the three elements enumerated in the Belvedere test, the result will be an individual shareholder being held liable for corporate misdeeds because it would be unjust to allow the shareholder to hide behind the fiction of the corporate entity. The exception has also been applied to ascertain whether a parent corporation could be held liable for its subsidiary corporation’s misconduct.
It is important to note that piercing the corporate veil is not a claim, it is a remedy encompassed within a claim. In other words, it is a doctrine wherein liability for an underlying tort or breach may be imposed upon a particular individual. In order to take advantage of this doctrine, a plaintiff’s complaint must simply contain allegations from which an inference fairly may be drawn that evidence on these material points will be introduced at trial.
 Belvedere Condominium Unit Owners’ Assoc. v. R.E. Roark Cos., Inc. (1993), 67 Ohio St.3d 274, 287.
 Dombroski v. Wellpoint, Inc. (2008), 119 Ohio St.3d 506, 510.
 Belvedere, supra. at 287.
 Dombroski, supra.
 Belvedere, supra. at 289.
 Dombroski, supra. at 511
 Id. at 510
 Id. at 513
 Minno v. Pro-Fab, Inc. (2009), 121 Ohio St.3d 464, 467.
 Geier v. National GG Industries, Inc., 11th Dist. No. 98-L-172, 1999 Ohio App. LEXIS 6263.