Banking laws apply to state and federal financial institutions that are involved in the borrowing, lending, and depositing of money. In addition to traditional banks, many other entities must comply with banking and financing laws. Examples of specific categories of banking law include real estate finance, acquisition finance, and international banking. These laws seek to ensure that lenders’ and individuals’ privacy rights are protected and that banks do not abuse their customers’ funds. Since many people come to banks seeking large sums of money in the form of a loan, banks have the ability to offer unfair terms or to take advantage of an individual’s monetary needs. These laws ensure that banks offer fair terms for loans and mortgages and that individuals who lack experience with financial matters are protected.
Banks and financial institutions are subject to a vast number of state and federal regulations. For example, the Federal Government enacted the Dodd-Frank Act in 2010, which contains over 1,500 separate laws and almost 400 rule mandates. One of the most prominent and well-recognized financial institutions is the Federal Deposit Insurance Corporation (FDIC). Any individual who deposits money with an FDIC is eligible for the FDIC’s deposit insurance program, which provides insurance of up to $100,000 for deposits.
Other banking laws include the Gramm-Leach-Bliley Act of 1999, which authorizes banks, securities firms, and insurance companies to affiliate with one another. More recent statutes have focused on the prevention of white-collar crime, money laundering, and mortgage refinancing. Additionally, depending on the location in which the bank is chartered and the scope of its operations, the institution may be required to comply with the FDIC, the Federal Reserve, the Office of the Comptroller of the Currency, and any applicable state regulations.
Finance law applies to individuals and companies who invest money in the stock market, as well as situations in which an individual or company borrows money to fund a particular project. A common example of a financing transaction is when a college student takes out a federal student loan in order to pay for tuition. Another example of a financing transaction is when an individual takes out a loan to purchase a car. In the business realm, most finance transactions involve a company issuing stock shares to investors. This gives the investor an equity stake in the company in exchange for the investor’s monetary contribution to the business or enterprise.
If a new company is unable to attract investors, it may decide to take out a loan from a bank in order to build the business. If the loan is used to purchase equipment or land, the bank may require that the property serve as collateral for the loan. This means that in the event the business is unable to repay the loan, the bank has the authority to take the property and land.
In order to ensure that their operations are complying with these regulations, directors of the organization often rely on banking and finance attorneys. Attorneys who practice banking and financial law handle a wide variety of matters. Some lawyers represent the institutions and help with daily operations like complaints against the bank and customer disputes. In general, the primary function of a lawyer who works for a bank is to ensure that the bank is complying with any regulatory laws that apply to the institution. Considering the extraordinary number of rules and regulations that apply to banks, ensuring regulatory compliance is a daily affair. These attorneys can also deal with complex matters like litigation and communicating with investors, government entities, and individuals, or training bank employees about regulatory issues.
In the event that the bank is subjected to a regulatory investigation or enforcement action, the lawyer will typically help defend the institution against the allegations and provide legal counsel to any officers or employees who have been specifically implicated. Regulatory agencies have broad authority to impose costly sanctions against a bank, including the termination of an insurance policy, civil fines, and cease and desist orders.
How does a mortgage work? A mortgage allows a buyer to purchase property when they cannot pay the full purchase price from their own funds. The buyer offers the property as security for a loan from the bank, which is paid off in installments. If the buyer does not keep up with their payments, the bank can proceed with a foreclosure or repossession.
How does a company go public? A company goes public by making an initial public offering, which means that it offers shares of its stock to the public for the first time. A bank usually will underwrite the sale and help determine how much the shares should cost and how much of the company should be sold. It will buy those shares and sell them to investors.
Can an investor sue for a securities violation? Yes, an investor can sue for a securities violation under rules such as SEC Rule 10b-5. This federal rule allows a private party to bring a lawsuit against a person or entity that engaged in fraud, deception, misrepresentations, or other violations in connection with the purchase or sale of a security. State securities laws, sometimes known as Blue Sky laws, also may provide a private right of action for securities violations.
What are some common types of securities fraud? Common types of securities fraud include misrepresentations, account churning, and unauthorized trading. Misrepresentations often occur when a broker misleads a client about the risk of an investment. Account churning involves unnecessary trades that generate more commissions. Unauthorized trading occurs when a broker completes transactions without permission.
What are the risks and rewards of venture capital investments? Venture capital investments typically involve unsecured loans to startups that cannot raise funds through other means. If the startup fails, the venture capitalist will lose their investment. If the startup successfully goes public or gets acquired by an established company, however, the investor could receive substantial returns.
Bank Lending Lending laws prevent risky actions by banks that may destabilize the banking industry, while imposing disclosure and anti-discrimination requirements on financial institutions.
Banking Fraud Criminal charges can arise from money laundering, accounting fraud, credit card fraud, internet fraud, stolen checks, and other forms of tampering with bank accounts or funds.
Mortgage Lending and Securitization Mortgages or other loans may be pooled and sold as securities to independent investors, who receive payments on the debts from the individuals or businesses that took out the loans.
Securities Fraud Investment brokers and firms sometimes engage in deceptions, misrepresentations, or other misconduct that causes losses to their investor clients, who can sue for these violations.
Securities Arbitration Many disputes between investors and brokers go to arbitration rather than a formal court proceeding, but decisions by arbitration panels are usually still final and binding.