InfoBytes, August 25, 2006
Sign up for weekly updates
RSS feed
Topics in this issue:
Federal Issues
OCC Issues Bulletin Regarding Do-Not-Call Restrictions. On August 23, the Office of the Comptroller of Currency (OCC) issued a bulletin to all national banks regarding the Telephone Consumer Protection Act (TCPA). The bulletin points out that national banks are not exempt from the TCPA, and that its requirements apply “even if an institution makes telemarketing calls only to its existing customers.” Thus, national banks making telemarketing calls, as defined under the act, must adopt a written policy for maintaining a do-not-call list and implement the required training and public information programs. The bulletin can be read at http://www.occ.treas.gov/ftp/bulletin/2006-37.html.
FRB Adopts and Requests Comment on Regulation E Changes. On August 24, the Federal Reserve Board (Board) issued a final rule to provide that payroll card accounts are covered by Regulation E, the Board’s consumer protection regulation governing electronic fund transfers. The final rule grants flexibility to financial institutions that must provide account transaction information to payroll card users. Under the rule, institutions are not required to provide paper periodic statements to consumers if the institution makes account transaction information available by telephone, electronically, and, upon the consumer’s request, in writing. The effective date is July 1, 2007. In a separate action, the Board requested public comment on an interim final rule to provide additional clarification regarding Regulation E’s coverage of the electronic collection of insufficient funds fees by merchants and other payees and consumer notice requirements for electronic check conversion transactions. The effective date for the interim final rule is January 1, 2007, consistent with a previously issued January 2006 final rule; however, certain provisions regarding the fee disclosures will have a delayed compliance date of January 1, 2008. The Board requests comment on the interim final rule within thirty days after publication in the Federal Register, which is expected shortly. To view the press release and see full text of the final rule, see http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20060824/default.htm.
HUD Charges Property Owners with Violating Fair Housing Act. On August 21, the Department of Housing and Urban Development (HUD) announced charges against a Chicago area company with violating the Fair Housing Act by refusing to rent to a couple with an infant son on the basis of occupancy standards. The property owner, Draper and Kramer, Inc., claimed that following the birth of their child the tenant couple, who had previously resided in a similar unit in the same building, would exceed the occupancy limits of the one bedroom apartment and not be allowed to move back. HUD Assistant Secretary for Fair Housing and Equal Opportunity, Kim Kendrick, said in the official press release that “Congress made it illegal to discriminate against families with children in 1988. In a time when finding decent, affordable housing can be difficult, equal access is more important than ever.” The case will be heard before an administrative law judge unless the parties elect to appear before a federal district court. To read the press release, see http://www.hud.gov/news/release.cfm?content=pr06-103.cfm.
State Issues
Ohio Revamps Mortgage Broker Act Regulations. In August, the Ohio Division of Financial Institutions issued new regulations pursuant to the Ohio Mortgage Broker Act, Oh. Admin Code1301:8-7-01 et seq. The new regulations replace the existing rules. Among the changes are new requirements for mortgage broker main and branch office applications, new requirements for loan officer licensure including a list of activities for which a loan officer license is required, additional requirements for loan officer initial and renewal license applications, and new rules on advertising, record keeping and continuing education for mortgage brokers. The revised regulations become effective September 1, 2006. They are available online at http://www.com.state.oh.us/dfi/default.htm.
North Carolina Increases Mortgage Licensing and Renewal Fees. North Carolina recently enacted a bill (SB 2043) that, among other things, increases licensing and renewal fees for mortgage bankers, mortgage brokers, and loan officers. Effective October 1, 2006, SB 2043 increases the base application fee for licensure as a mortgage banker or mortgage broker from $1,000 to $1,250. The bill also increases the base renewal fee for mortgage bankers and mortgage brokers from $500 to $625. Additionally, loan officer license and renewal fees will increase from $50 to $67.50. For a copy of SB 2043, see http://www.ncga.state.nc.us/Sessions/2005/Bills/Senate/PDF/S2043v5.pdf.
Courts
Seventh Circuit Rules for Lender in Firm Offer Case. In a two-to-one decision issued today, a panel of the Seventh Circuit Court of Appeals, in Perry v. First National Bank, affirmed the district court’s ruling that First National Bank had provided a legitimate “firm offer of credit” to the plaintiff under the Fair Credit Reporting Act (FCRA). The plaintiff contended that the Bank’s credit solicitation for a Visa card with a $250 limit was not a firm offer of credit because it was for such a small amount of credit, and accompanied by significant fees, that it was virtually worthless. The Court of Appeals determined, using the analysis it set out in Cole v. U.S. Capital, 389 F.3d 719 (7th Cir.2004), that (i) the recipient of the offer was clearly pre-approved, (ii) the interest rate for the credit card of 18.9% was stated in the terms and conditions brochure sent with the credit solicitation, and (iii) while the offer is not an attractive deal for the great majority of consumers, the card was not without value, citing the fact that if the credit card holder paid off the card each month, the card would allow him or her to make almost $3000 in purchases in one year, and would also allow the cardholder to build up a credit rating, which is useful to individuals who are trying to establish credit for the first time or to reestablish good credit. Additionally, the Court found that First National’s offer was not a “guise for solicitation,” or “a sham offer used to pitch a product rather than extend credit,” because the only product First National offered was a credit line. The Court also affirmed the ruling of the lower district court that the plaintiff did not have a statutory right to bring a private cause of action under Section 615(d) of the Fair Credit Reporting Act, 15 U.S.C. §1681m(d), due to the elimination of the right to bring such actions by the Fair and Accurate Credit Transactions Act of 2003 (FACTA). While helpful to the lending industry, the case does not address a key issue for mortgage lenders – how much of the offer must be specified in the initial mailer. The dissenting judge disagreed that the offer was a firm offer of credit because it could not reasonably be considered as offering value to the consumer. Perry v. First National Bank, – F.3d –, 2006 WL 2456774, No. 05-C-1470 (7th Cir. Aug. 25, 2006) available at http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=05-3867_022.pdf .
New York Court Allows Police to Electronically Sign Tickets Before Completing Document. A New York court recently determined that a police officer can properly affix an electronic signature to an electronic traffic ticket and the supporting deposition, even if the police officer has not yet provided the information to which the signature attests. State of New York v. Corletta, 2006 N.Y. Slip. Op. 26150 (Apr. 18, 2006). The court’s decision is consistent with an earlier decision previously covered in InfoBytes (see New York Court Criticizes Police Dept.’s Electronic Signature Processes), which examined the same process and criticized the e-ticket system’s design because the arresting officer’s signature was affixed to the e-ticket before the police officer filled out the information on the ticket. Despite the ruling, the court noted its concern that the signature is placed on the supporting deposition before the specific details concerning the offense are inserted. The court also took “judicial notice that the software used to produce [the documents] could be modified to provide for the application of an electronically stored electronic signature to be applied after entry of the information concerning the specific offense…” The court’s expressed concern is instructive to those who are implementing electronic signature business processes. A copy of the decision can be obtained from http://iapps.courts.state.ny.us/lawReporting/Search (search “Corletta” in the Party Name field).
Federal District Court in Massachusetts Rejects Motion to Dismiss in “Money Now, Terms Later” Case. The Federal District Court in Massachusetts rejected defendant Circuit City’s motion to dismiss in a case in which purchasers of an extended warranty brought a class action lawsuit for various violations, including breach of contract, promissory estoppel, unjust enrichment, conversion, and violation of state consumer protection laws. In this case, the named plaintiffs bought a telephone and a separate prepaid, two-year extended warranty from Circuit City. The plaintiffs received a receipt and a brochure outlining the extended service plan, which contained, “in small print,” a reference to a “Comprehensive Service Guide.” The plaintiffs were not given the Comprehensive Service Guide. The plaintiffs returned the telephone when it malfunctioned and were given a gift card equal to the amount of the purchase price of the telephone. When the plaintiffs asked for a refund of the remaining value of the warranty, they were told that, under the terms of the plan, reimbursement or replacement of the phone terminated the plan. Circuit City argued that an enforceable contract existed under a “money now, terms later” agreement—that the complete terms of the warranty plan were incorporated by reference to the Comprehensive Service Guide. The court stated, however, that “money now, terms later” contracts are enforceable only when reference to the binding terms is explicit, and when the purchaser has a clear opportunity to review the terms and return the product for a refund if unsatisfied with the provisions. The court found that the initial reference to the Comprehensive Service Guide was not sufficiently explicit, and that the plaintiffs stated a valid claim under the unfair and deceptive acts or practices provisions of Massachusetts’ consumer protection statute. Schacter v. Circuit City Stores, 433 F. Supp. 2d 140 (D. Mass. 2006), available at http://pacer.mad.uscourts.gov/dc/opinions/gorton/pdf/schacter.pdf.
Seventh Circuit Rules on Local Controversy Exception to CAFA. The Seventh Circuit Court of Appeals, agreeing with established Fifth Circuit and Eleventh Circuit precedent, held that the party opposing removal on the grounds of the “local controversy” exception to Class Action Fairness Act (CAFA) jurisdiction bears the burden of proof. Hart v. FedEx Ground Package Systems Inc., Case No. 06-2903 (7th Cir. August 9, 2006). The Hart plaintiffs originally filed a putative class action against FedEx on behalf of local package delivery drivers in Pennsylvania state court. FedEx removed the case under CAFA, which creates federal jurisdiction over matters that put in excess of $5,000,000 in controversy where the putative class is made up of 100 persons or more and at least one member of that class is a citizen of a different state than the defendant. In its removal papers, FedEx, a resident of Pennsylvania, asserted among other things that at least some of the putative class resided outside Pennsylvania. Plaintiffs moved to remand the case to state court on the basis of the so-called “local controversy” exception to CAFA, which requires a federal court to deny jurisdiction where the principal injuries were incurred in the state of filing and where more than two-thirds of the proposed class and a defendant are citizens of the state in which the complaint was filed. Plaintiffs argued in their motion to remand that FedEx had not borne its burden of showing that two-thirds of the class did not reside in Pennsylvania. The District Court denied remand, and the Seventh Circuit affirmed. The Seventh Circuit explained that, while the initial burden of proof with respect to CAFA jurisdiction remains with the proponent of removal, the express language of CAFA, supported by its clear legislative history, requires that the party seeking remand on the basis of the “local controversy” exception to CAFA jurisdiction bears the burden of showing that the exception applies. Importantly, the Seventh Circuit reminded the Plaintiffs that they were not now precluded from filing another motion to remand after developing evidence to support their claim that two-thirds of the putative class resides in Pennsylvania. (For a copy of the opinion, see http://www.ca7.uscourts.gov/fdocs/docs.fwx?caseno=06-2903&submit=showdkt&yr=06&num=2903.)
Firm News
Jeremiah Buckley, Joseph Kolar, and Andrea Lee Negroni will be speaking at the Mortgage Bankers Association’s Regulatory Compliance Conference at the J.W. Marriott Hotel in Washington DC from September 6-9. The conference brochure can be found at http://events.mortgagebankers.org/regcomp2006/agenda/.
Robert Serino was quoted in an American Banker Online article entitled “Charters, Basel, Regulators, and Lobbyists” published August 4, 2006. In the article, Mr. Serino discussed new requirements under the Bank Secrecy Act.
Mr. Serino will be speaking at the National Institute on Banking Law II on September 21-22, 2006 in Chicago. To learn more or register, go to http://www.abanet.org/cle/programs/n06bla1.html.
Margo Tank and Frank Supik published the article “eMortgage Implementation Considerations” in the July/August edition of Electronic Banking Law and Commerce Report. The article summarizes legal and business developments in an emerging field of mortgage banking. To view a copy of the article, please see the Buckley Kolar Publications web page.
Buckley Kolar welcomes Bjornulf Ostvik-White to the firm as a first year associate. Mr. Ostvik-White is a 2006 graduate of the George Washington University Law School, holds a master’s degree in public administration from Cornell University (2003) where he graduated with distinguished honors concentrating in economics and fiscal regulatory policy, and received his B.A. in Government from Cornell University in 2002.
Miscellany
HUD Releases New FHA Lender Approval Handbook. On August 18, HUD posted a revised version of its Mortgagee Approval Handbook (Handbook 4060.1 REV-2) for FHA Title II loan insurance programs. The new edition incorporates thirteen years of supplementary Mortgagee Letters issued by HUD, as well as regulatory changes. The revised handbook in full can be found at HUD’s online database, www.hudclips.org.
FDIC Posts Comment Letters Regarding ILC Freeze. The Federal Deposit Insurance Corporation (FDIC) has started posting public letters in response to its request for comment on its six-month pause in processing new applications for insurance by Industrial Loan Companies (ILCs). The request for comment (reported in the August 18th edition of InfoBytes) was published in the Federal Register on August 23, and the comment period will continue to September 10, 2006. Public comments can be read at http://www.fdic.gov/regulations/laws/federal/2006/06comilc.html.
Freddie Mac Announces Forty-Year Mortgage. On September 1, Freddie Mac will begin offering forty-year mortgages through its Home Possible 100 and 97 programs. In a bulletin released June 26, Freddie Mac announced several changes to its Home Possible Mortgages in an effort to “simplify [its] affordable lending offerings.” These changes include reducing the minimum borrower contributions, opening junior liens to greater and easier financing, and eliminating the borrower education requirements in certain cases. For more about this line of mortgages see http://www.freddiemac.com/singlefamily/mortgages/homepossible/hp100.html and http://www.freddiemac.com/singlefamily/mortgages/homepossible/hp97.html.