Banking Litigation: How Financial Disputes Are Resolved in Court

Lender-borrower disputes arise from defaults, covenant violations, and disputes about loan document interpretation. Lender liability claims include breach of contract, promissory estoppel, and economic duress. Banking litigation over lender-borrower disputes involves parallel regulatory complaints, workout negotiations, and civil litigation.

Loan agreements and disputes counsel analyzes loan documents to identify lender contractual obligations and potential lender liability claims, advises borrowers on the terms of credit agreements and the events of default applicable to their loan, and advises on the parallel strategies of regulatory complaint, workout negotiation, and civil litigation in banking disputes.

A bank that executes unauthorized transactions or improperly freezes accounts has breached its contractual obligations. The Uniform Commercial Code governs banking transactions including check processing, electronic funds transfers, and letters of credit. UCC Article 4A governs electronic funds transfers. A bank that processes an unauthorized wire transfer may be liable for the full amount if it failed to comply with its own security procedures. Regulation E governs consumer electronic funds transfers. A bank that fails to investigate and resolve a consumer's error complaint within the required timeframe has violated Regulation E.

Bank fraud counsel evaluates account disputes and unauthorized transaction claims against financial institutions, advises on UCC Article 4 and 4A obligations applicable to check processing and electronic funds transfer disputes, and advises on Regulation E error resolution obligations and the liability exposure banks face when they fail to meet federal timing requirements.

The Truth in Lending Act requires lenders to disclose the cost of credit before the loan closes. TILA violations give borrowers the right to actual damages, statutory damages, and attorney fees. In certain mortgage transactions, TILA violations give the borrower the right of rescission for up to three years. The Real Estate Settlement Procedures Act governs the settlement process for residential mortgage loans. RESPA prohibits kickbacks, requires accurate disclosure of settlement costs, and governs mortgage servicing. Predatory lending claims provide additional remedies under state consumer protection statutes.

Mortgage fraud counsel evaluates TILA and RESPA claims arising from mortgage lending transactions, advises on the right of rescission available for TILA violations in closed-end mortgage transactions, and advises on predatory lending claims and the additional remedies available under state consumer protection statutes.

Federal banking regulators supervise financial institutions, conduct examinations, and bring enforcement actions when violations are identified. The OCC supervises national banks, the FDIC supervises state non-member banks, and the CFPB enforces federal consumer financial laws. Regulatory enforcement actions take the form of cease and desist orders, civil money penalties, and consent orders. Financial institutions subject to enforcement actions must balance regulatory compliance with their civil litigation exposure. Banking litigation counsel must coordinate regulatory and civil strategy from the outset of a dispute.

Wire fraud counsel advises financial institutions on the coordination of regulatory enforcement response and civil litigation strategy, evaluates consent orders and enforcement actions for their impact on the institution's civil litigation exposure, and advises on the OCC, FDIC, Federal Reserve, and CFPB enforcement processes applicable to banking regulation violations.

The Bank Secrecy Act requires financial institutions to file Suspicious Activity Reports and Currency Transaction Reports. AML compliance failures are among the most aggressively prosecuted areas of banking regulation. FinCEN enforces BSA compliance requirements. Financial institutions that fail to implement adequate AML programs face civil money penalties. Deferred prosecution agreements and non-prosecution agreements are common resolutions of criminal BSA investigations, requiring AML program remediation, financial penalties, and independent monitorship.

Anti-money laundering counsel advises financial institutions on BSA compliance obligations and AML program requirements, manages the response to FinCEN enforcement actions and criminal investigations of Bank Secrecy Act violations, and advises on the negotiation of deferred prosecution agreements and non-prosecution agreements in AML criminal investigations.

Class action claims against banks involve systemic practices affecting large numbers of borrowers or depositors. The Equal Credit Opportunity Act and the Fair Housing Act prohibit discriminatory lending. Disparate impact claims allow plaintiffs to challenge lending practices that disproportionately harm protected classes. Financial fraud claims arise when financial disclosures are materially false or misleading. The Private Securities Litigation Reform Act imposes heightened pleading standards on securities fraud class actions against financial institutions.

Financial fraud counsel evaluates lender liability and class action claims against financial institutions, advises on ECOA and Fair Housing Act disparate impact claims arising from lending practices, and advises on securities fraud claims under the Private Securities Litigation Reform Act against financial institutions that made materially false disclosures.

UCC Article 5 governs letters of credit as independent bank obligations. ISDA master agreements define events of default, early termination, and close-out netting for interest rate swaps. A counterparty that terminates an ISDA agreement after default may be entitled to a termination payment based on the mark-to-market value. Disputes over termination payment valuation are a recurring source of banking litigation.

Derivative counsel evaluates letter of credit disputes under UCC Article 5 and advises on the issuing bank's obligations upon presentation of compliant documents, advises on the event of default and early termination provisions in ISDA master agreements governing derivative transactions, and advises on the valuation of termination payments in derivative contract disputes.

Banking litigation requires a clearly developed strategy before the first document request is served. Arbitration clauses in credit agreements and deposit account agreements may require disputes to be resolved through arbitration rather than litigation. Discovery in banking litigation is extensive. Expert witnesses include financial economists, former bank examiners, and accountants. Bankruptcy proceedings often intersect with banking disputes when a borrower files for protection and stays all civil collection actions by the lender.

Bankruptcy litigation counsel develops the litigation strategy and forum selection analysis for banking disputes, advises on the arbitration clauses in credit agreements and deposit account agreements and their effect on the parties' dispute resolution options, and manages the intersection of bankruptcy proceedings and civil banking litigation when a borrower seeks protection from creditors.