Welcome to our first issue of Promissory Notes of 2023. Promissory Notes is our Banking & Finance Insights e-newsletter where we highlight important news articles from the industry and explain why they are important.

First, we want to introduce you to our new co-editor - Bryce J. Hunter. Bryce is a Member in our Roanoke office and is Co-Chair of the Banking & Finance Practice Group. He is also Chair of the Tax Credits Practice Group and Chair of the Community Banking Practice Group. His practice focuses on banking and financial services law, including securities law, finance transactions, creditors’ rights and debt restructuring. He also assists clients in real estate, tax credit financing and franchising matters. Bryce has been with the firm for a number of years and his reputation precedes him.

He has been continuously nominated by his peers for inclusion in The Best Lawyers in America in the area of Banking Law. And, was named the Best Lawyers® "Lawyer of the Year" for Banking and Finance Law in Roanoke, Virginia for 2022. Bryce is very active in the banking and finance legal community. He is a member of the Virginia Board of Bar Examiners, Character & Fitness Committee; the Virginia State Bar 8th District Disciplinary Committee; the National Association of Bond Lawyers; the Federal Bar Association, Banking Law and Bankruptcy Law Sections; and the Local Government Attorneys of Virginia Association.

Bryce is joined by our other co-editor Paul Papadopoulos, who is a Member in our Charleston office and serves as the Co-Chair of our State & Local Taxation Practice Group. Paul is AV® Preeminent™ Peer-Review Rated by Martindale-Hubbell and has been nominated by his peers for inclusion in The Best Lawyers in America in the areas of Closely Held Companies and Family Businesses Law, Corporate Law and Tax Law. 

His legal participation is also vast as he serves as Chair of the West Virginia State Bar, Committee on State and Federal Taxation and Chair of the Committee on State and Federal Taxation with the West Virginia State Bar. Paul is a member of the West Virginia State Bar Association, Kanawha County Bar Association, West Virginia Working Together Steering Committee, National Association of State Bar Tax Sections, and the Charleston Area Tax Group.

Together, Bryce and Paul will shepherd Promissory Notes to publication. If you have suggestions for this e-newsletter or legal questions, you can contact Bryce and Paul or you can email us.

We also would like to mention that we are hosting the 2023 National Labor and Employment Law Symposium in Park City, Utah, February 5-8, 2023. If you or a colleague have a focus in labor and employment law, we think you will find this event very beneficial. You can learn more here.

Thank you for reading and we wish you the best of 2023.

Spilman Banking and Finance Practice Group





“With plaintiff attorneys seeing potential large dollar settlements and verdicts, along with increased regulatory scrutiny, financial institutions need to review their overdraft practices.”

Why this is important: With increased intensity over the past year, the CFPB and the OCC have criticized bank overdraft practices and have warned of enhanced supervisory and enforcement scrutiny. Sensing opportunity to bring complaints against deep pocketed defendants and using the regulators rhetorical fodder, law firms have ramped up sending demand letters threatening a lawsuit and/or filing a lawsuit against banks and credit unions alleging customers and members were improperly assessed overdraft and/or NSF fees. Overdraft fees have been challenged in class action lawsuits under several different theories. Initially, many plaintiffs alleged that banks and credit unions violated the governing account agreement by using customers’ available balances instead of their current balances to determine whether a transaction was subject to an overdraft fee. A second common theory has been that financial institutions intentionally reordered pending transactions from largest to smallest in order to maximize overdraft and NSF fees. Additional claims include financial institutions improperly assessing debit card transactions by posting to accounts when funds were previously set aside when preauthorization holds were placed and using a Reg E form (explaining how a financial institution assesses overdraft fees) that is ambiguous and, therefore, fails to comply with Reg E requirements.  

Given the costly awards that plaintiffs have obtained to date, consumer-facing financial institutions should review recent supervisory findings and their own policies, customer disclosures and account agreements, internal guidelines on overdraft/non-sufficient fees, as well as any potential disparate impact these fees may pose. It will pay for consumer-facing financial institutions to be proactive. Financial institutions should therefore re-examine their account agreements and overdraft disclosure materials to ensure they minimize risk and exposure. As plaintiff lawyers continue to troll for plaintiffs in all states, financial institutions should consider including binding arbitration language with a class action waiver to account agreements. Such language can be used to prevent these situations from becoming class action lawsuits. --- Bryce J. Hunter

“However, as millennials increasingly make up a larger share of open loan holders, credit unions have a unique opportunity to utilize their 86% satisfaction rate in appealing to this digital-first generation by offering more streamlined tools at the lower rates credit unions can generally offer.”

Why this is important: Customer loyalty is a hallmark of the credit union industry. Recent surveys report membership satisfaction with credit unions remains high at 86 percent, but the details indicate this figure is slightly down from prior years’ surveys. Customer loyalty incentives and offerings span a wide range, each with unique costs to implementation and uptake. Interestingly, this recent survey shows that by and large, millennials are looking for digital tools rather than rewards. The larger competitors such as PNC and JG Wentworth are taking notice. PNC has previously announced its partnership with Blend, a software firm focused on cloud-based tools, seeking to digitize its mortgage loan processes. JG Wentworth is taking the acquisition route, apparently seeking to incorporate FinTech tools into its proprietary systems. Strategic third party partnerships may provide the best of both worlds for more budget-conscious credit unions. By selecting and partnering with a third party that already offers digital tools and software that consumers are craving, smaller and mid-size credit unions can offer products that meet the unique needs of the digital-first generations, starting with the millennials. --- Brian H. Richardson

“Credit unions announced 16 bank acquisitions in 2022, breaking the previous yearly record of 13 announcements in 2019, excluding terminations.”

Why this is important: Concerns over economic uncertainty and rising interest rates may have muted banks’ M&A activity in 2022, but credit union activity kept a strong pace. However, despite the increase in credit union acquisition of banks, these deals remain the minority of all U.S. bank M&A activity, with the 16 announcements representing just under 10 percent of the 168 total bank deals announced in 2022.

The activity broke other yearly records in 2022 as well, including the total assets of bank targets involved in credit union transactions, which was $5.70 billion across 16 targets, well above the previous record of $3.92 billion across 13 targets in 2019. Further, the total average assets of the 16 bank targets in the 2022 announced sales to credit unions stood at $356.5 million, above the previous record-high of $349.6 million across the 10 targets in 2021. Commentators observe that credit unions benefit from not having to answer to shareholder concerns and can focus on the long-term strategic merits of a deal rather than short-term factors like accounting metrics and deal math involving unrealized securities losses and the subsequent impact to accumulated other comprehensive income.

Although commentators expect the number of M&A announcements in 2023 to continue along the 2022 trends, one barrier for credit union-bank deals could be state regulatory or legislative actions. For instance, in 2022 Mississippi passed legislation barring state-chartered banks from selling to institutions not insured by the FDIC. Other state regulators in Minnesota, Missouri, Nebraska, and Tennessee have attempted to prevent these transactions by not approving deals announced in their respective states. Similar roadblocks could arise in 2023 as credit unions pursue acquisitions in other states. --- Bryce J. Hunter

“Chief risk officers say they are seeing cybersecurity risks everywhere, new survey shows.”

Why this is important: Cybersecurity risks have leaped into the front of the pack of concerns weighing on risk officers’ minds. Historically, credit presented the heaviest risk. Credit remains second, with strong indications that volatile economic conditions and high inflation could bring credit risk back to number one priority – but for now, cybersecurity is the top priority for both short-term and long-term strategy. For banks, one main concern with cybersecurity is that their vulnerabilities are not entirely in-house. There is a full chain in the overall ecosystem that must remain strong – and where threat actors will try and exploit a weakness. Often, bank vulnerability depends on security and data privacy practices of third parties and partners. It should be viewed as critical for each entity in the chain to address potential threats, identify risk factors, and verify compliance with obligations to ensure robust security is in place at all levels. From a legal standpoint, reviewing accountability and reporting requirements as between contractual parties should be a matter of periodic review. What was strong enough under contractual terms from several years ago may not offer the same level of protection when considering the sophistication of today’s threats. Risk officers focusing on these issues over the next few years should also look backward to historical terms and implementation in their efforts to minimize future risk. --- Brian H. Richardson