TCF Bank 2007 Annual Report Download - page 32

may be a decline in the demand for some types of equipment
which TCF leases and/or finances, resulting in a decline in
the amount of new equipment being placed in service as
well as the decline in equipment values for equipment previ-
ously placed in service. TCF, like all owners and lessors of
commercial equipment, may also be exposed to liability
claims resulting from injuries or accidents involving that
equipment. Such liability has been most acute in states
that have adopted laws imposing statutory vicarious
liability on leasing companies for any injuries or property
damage caused by motor vehicles they owned and leased.
In 2005, a federal statute was enacted that significantly
reduced a leasing company’s exposure to that risk. TCF
seeks to mitigate its overall exposure to lessor’s liability
risk by requiring certain lessees to furnish evidence of liabil-
ity insurance prior to lease inception and to maintain that
insurance throughout the term of the lease, and through its
own insurance programs.
Income Taxes TCF is subject to federal and state income
tax laws and regulations. Income tax regulations are often
complex and require interpretation. Changes in income
tax regulations could negatively impact TCF’s results of
operations. If TCF’s REIT affiliate fails to qualify as a REIT,
or should states enact legislation taxing REITs or related
entities, TCF’s tax expense would increase significantly. The
REIT and related companies must meet specific provisions
of the Internal Revenue Code and state tax laws. Use of
REITs is and has been the subject of federal and state audits,
litigation with state taxing authorities and tax policy debates
by various state legislatures. Any unfavorable law changes
and unfavorable audit results in 2008 would increase
TCF’s income taxes. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations –
Consolidated Income Statement Analysis – Income Taxes”
for additional information.
Rules and Regulations New or revised tax, accounting,
and other laws, regulations, rules and standards could sig-
nificantly impact strategic initiatives, results of operations,
and financial condition. The financial services industry is
extensively regulated. Federal and state laws and regulations
are designed primarily to protect the deposit insurance funds
and consumers, and not necessarily to benefit a financial
company’s shareholders. These laws and regulations
may impose significant limitations on operations. These
limitations, and sources of potential liability for the violation
of such laws and regulations, are described in “Regulation.”
These regulations, along with tax and accounting laws,
regulations, rules, and standards, have a significant
impact on the ways that financial institutions conduct
business, implement strategic initiatives, engage in tax
planning and make financial disclosures. These laws, regu-
lations, rules, and standards are constantly evolving and
may change significantly over time. The nature, extent, and
timing of the adoption of significant new laws, changes in
existing laws, or repeal of existing laws may have a material
impact on TCF’s business, results of operations, and finan-
cial condition, the effect of which is impossible to predict.
Violations of these laws can result in enforcement actions
which can impact operations.
Future Legislative and Regulatory Change;
Litigation and Enforcement Activity There are a
number of respects in which future legislative or regulatory
change, or changes in enforcement practices or court rul-
ings, could adversely affect TCF, and it is generally not pos-
sible to predict when or if such changes may have an impact
on TCF. TCF’s income in future periods may be negatively
impacted by pending state and federal legislative proposals
which, if enacted, could limit interest rates or loan, deposit
or other fees and service charges. For example, recently
enacted federal legislation will reduce interest subsidies
and other benefits available to financial institutions that
make education loans. Financial institutions have increas-
ingly been the subject of class action lawsuits or in some
cases regulatory actions challenging a variety of practices
involving consumer lending and retail deposit-taking activity.
The Community Reinvestment Act (“CRA”) and fair lending
laws and regulations impose nondiscriminatory lending
requirements on financial institutions. The Department of
Justice (“DOJ”) and other federal agencies are responsible
for enforcing these laws and regulations. A successful chal-
lenge to an institution’s performance under the CRA or fair
lending laws and regulations could result in a wide variety
of sanctions, including the required payment of damages
and civil money penalties, injunctive relief, imposition
of restrictions on mergers and acquisitions activity, and
restrictions on expansion activity. Private parties may also
have the ability to challenge an institution’s performance
under fair lending laws in private class action litigation.
12 | TCF Financial Corporation and Subsidiaries