Lender Liability
Lender liability in banking litigation is a legal concept rooted in the notion that lenders are supposed to treat their customers fairly. There are several types of claims that a borrower can make against a lender. These claims include fraud, breach of contract, bad faith lending, and tortious interference. A borrower must show that the lender acted in bad faith to assert a claim. This means that the bank or financial institution violated the implied covenant of good faith, a general principle of equity, or the Uniform Commercial Code. A breach of contract can include a written or oral agreement. The lender is liable for damages if it does not fulfill its obligations, even if the agreement is unenforceable. During the loan origination process, a bank must act reasonably. However, banks can engage in improper conduct, such as advancing lender interests without obtaining the borrower’s approval. The bank may have to pay a civil penalty for a lender liability violation, depending on the circumstances.
Regulatory Liability
The world of financial institutions is a highly regulated and scrutinized one. These entities are subject to regulatory enforcement actions, which an administrative law judge typically hears. They are also subject to a wide variety of litigation. Defending a financial institution requires an in-depth understanding of the industry and banking litigation support background. One of the main areas of financial regulatory enforcement involves rate regulation. This is the practice of requiring a company to report the total compensation allowed for its services. Rate regulation can significantly impact a company’s long-term financial performance. Another area of financial regulatory enforcement is the Consumer Financial Protection Bureau regulation. This regulation defines key terms and lists the types of transactions covered by the regulation. It also establishes the legal rights and duties of financial institutions. Many laws and regulations affect electronic deposits. For instance, the Consumer Financial Protection Bureau regulation includes an error-resolution requirement for consumers who initiate electronic funds transfers. In addition, unauthorized EFTs are a violation of the law.
Complexity Risk
Bank holding companies are complex organizations that conduct multiple lines of business across multiple geographies. They may also have affiliates outside the banking sector. A bank’s organizational complexity can raise both operational and financial risks. For example, the number of affiliated entities outside the banking sector can make it difficult to assess a bank’s performance. Furthermore, geographical complexity measures can lead to difficulties in managing a banking organization.
As a result, regulatory changes have tended to lower the organizational complexity of banks. However, these changes have not moderated the effect of complexity on risks. This is because the cost-benefit tradeoff of complexity has changed. Moreover, the regulatory costs of bank complexity may be related to the institution’s systemic importance. Banks’ complexity has also been affected by governance arrangements. Regulatory arbitrage can arise from reduced market discipline. Additionally, implicit government subsidies can increase moral hazard problems. These issues are often exacerbated when a BHC is heavily involved in sales and trading.
